HCB BANCSHARES, INC.





                                  ANNUAL REPORT

                                      2000

<PAGE>


                  [HCB BANCSHARES' LETTERHEAD]

         To Our Shareholders:


         As HCB Bancshares,  Inc. (HCBB) completes its third full fiscal year as
a publicly held company,  a review of our past  illustrates why our expectations
for the future are so likely to be realized.

         In 1996,  HCBB was formed to help its subsidiary,  HEARTLAND  Community
Bank,  execute its  Strategic  Plan  (Plan) for  expansion,  growth,  and public
recognition  and  acceptance  as  a  hometown,  community-based  alternative  to
multi-billion-dollar  regional  banks.  Little  did we know  how  many  Arkansas
communities  would be affected by the spread of the big regional banks. Our plan
was simple:  improve our information  technology,  hire good bankers,  develop a
full array of competitive banking products,  then open new offices and grow. Our
excellent  customer  service and our  commitment to community  service have been
very well received as we have competed with the regional  banks,  and the future
looks extremely bright.

         In 1996 we  developed  our Plan,  opened a new  office,  and bought two
offices. We added professional expertise in loan underwriting and training.

         In 1997, we completed new buildings for two of those  offices.  We took
our company public. We installed a computer network, bringing all of our offices
to a new,  higher  level of  communication.  We  completed  our search for a new
provider of  information  technology,  and began to work  toward the change.  We
added professional expertise in human resources and bank operations.

         In 1998,  we sold one of the offices we had bought.  We  completed  our
conversion to the new information technology, and added expertise in technology,
commercial lending,  bank operations,  and accounting.  We also fell victim to a
breakdown in internal controls,  which affected our ability to produce financial
reports in which we had total confidence.

         In 1999,  our stock was  delisted  by Nasdaq  because of our failure to
provide  timely  reports.  We spent  that  year  cleaning  up our  records,  and
reinstating  and improving  our internal  controls.  We added more  expertise in
accounting, and in November, the Nasdaq relisted our stock.

         In 2000, our earnings have slowly but steadily improved.  We have added
dramatically to our line of banking products, and we stand ready to continue our
growth in both assets and profitability.

         In late 2000, we will open our  full-service  banking office in Bryant,
Arkansas,  where until now we have operated a loan  production  office.  We have
enjoyed excellent lending results in Bryant, and expect to see quick, steady and
significant growth in deposits.

         We have  weathered  the  storm,  and our  outlook  toward the future is
extremely good. We expect  continued  expansion,  continued  increases in market
share, and continued growth in profitability.  With the continued  consolidation
in our  industry,  our  opportunities  become  greater,  because of our focus on
customer relationships, hometown banking, and community service. Our mission has
been to ensure that  Arkansas  towns  continue to have a local bank to help them
meet their financial needs, and experience continues to tell us that our mission
is sound, wanted, and well received.

<PAGE>



                              FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>

                                       2000       1999       1998       1997      1996

<S>                                  <C>        <C>        <C>        <C>        <C>
Total Assets (millions)              $ 291.1    $ 285.3    $ 250.9    $ 200.4    $ 171.2

Net Interest Income (millions)      $    6.7   $    6.2   $    6.1   $    4.8   $    3.5

Ratio of Interest Earning Assets
  To Interest-Bearing Liabilities     105.42%    111.55%    119.51%    108.76%    108.47%

</TABLE>


/s/ Cameron D. McKeel


Cameron D. McKeel
President and Chief Executive Officer


<PAGE>


                              HCB BANCSHARES, INC.


         HCB Bancshares,  Inc. ("Bancshares") was incorporated under the laws of
the  State  of  Oklahoma  in  December  1996 at the  direction  of the  Board of
Directors of HEARTLAND Community Bank (the "Bank") for the purpose of serving as
a savings  institution  holding  company of the Bank, upon the conversion of the
Bank from  mutual to stock  form,  which was  completed  on April 30,  1997 (the
"Conversion").  The accompanying  consolidated  financial statements include the
accounts  of  Bancshares  and the Bank and are  collectively  referred to as the
"Company".  All significant  intercompany  balances and  transactions  have been
eliminated in consolidation.

         Prior to the  Conversion,  Bancshares  did not  engage in any  material
operations.  Bancshares  has no  significant  assets other than the  outstanding
capital stock of the Bank, a portion of the net proceeds of the  Conversion  and
notes  receivable,  one of which  is from  the  Employee  Stock  Ownership  Plan
("ESOP").  Bancshares'  principal  business is the business of the Bank. At June
30,  2000,  the Company had total assets of $291.2  million,  deposits of $144.9
million, and stockholders' equity of $28.2 million, or 9.7% of total assets.


         The Bank currently operates through five full  service-banking  offices
located in Camden (2), Fordyce,  Sheridan,  and Monticello,  Arkansas and a loan
production office in Bryant,  Arkansas.  On February 16, 2000, the bank received
approval from OTS to convert its loan production office in Bryant, Arkansas to a
full service  branch.  Construction is in progress with an expected open date of
October 30, 2000.

         As a federally  chartered savings  institution,  the Bank is subject to
extensive  regulation  by the OTS.  The  Bank's  lending  activities  and  other
investments must comply with various federal  regulatory  requirements,  and the
OTS  periodically  examines  the Bank for  compliance.  The Bank's  deposits are
insured up to the  maximum  limits by the  Savings  Association  Insurance  Fund
("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC"). The
FDIC also has the authority to conduct special examinations.  The Bank must file
reports with OTS describing  its activities and financial  condition and is also
subject to certain  reserve  requirements  promulgated  by the  Federal  Reserve
Board.


                                       3
<PAGE>



                             MARKET FOR COMMON STOCK
                         AND RELATED STOCKHOLDER MATTERS


         Bancshares  common stock began trading on the Nasdaq National Market on
May 7, 1997, under the symbol "HCBB." Effective February 2, 1999, the Bancshares
common  stock was  delisted and ceased  trading on the Nasdaq  National  Market.
Bancshares  common  stock  began  trading on the OTC  Bulletin  Board  effective
September  16,  1999 and was listed on the  Nasdaq  Small-Cap  Market  effective
November 22, 1999. At June 30, 2000,  there were 2,046,580  shares of the common
stock outstanding and  approximately  781 stockholders of record.  Following are
the high and low bid  prices,  by fiscal  quarter,  as  reported  on the  Nasdaq
National  Market  from  July 1,  1997 to  February  2,  1999  and on the  Nasdaq
Small-Cap  Market  November 22, 1999 to June 30,  2000,  and through the initial
underwriting  brokerage firm of Trident Securities  (McDonald  Investments) from
February 3, 1999 to November 21, 1999, as well as the dividends paid during such
quarters.
<TABLE>
<CAPTION>


                                                      High               Low            Dividends Per Share
                                                      ----               ---            -------------------
              <S>                                     <C>                <C>                <C>
              Fiscal 2000
                    First Quarter                     9.63               8.00               $ 0.06
                    Second Quarter                    9.63               7.00                 0.06
                    Third Quarter                     8.00               5.75                 0.06
                    Fourth Quarter                    7.25               5.63                 0.06

              Fiscal 1999:
                    First Quarter                  $ 15.25            $ 10.50               $ 0.06
                    Second Quarter                   13.00               6.00                 0.06
                    Third Quarter                    10.75               9.00                 0.06
                    Fourth Quarter                    9.44               8.00                 0.06
</TABLE>

         The stated high and low bid prices reflect inter-dealer prices, without
retail  mark-up,   markdown  or  commission,   and  may  not  represent   actual
transactions.

         The payment of dividends  on common  stock is subject to  determination
and  declaration by the Board of Directors of Bancshares.  The payment of future
dividends  will  be  subject  to the  requirements  of  applicable  law  and the
determination  by the Board of  Directors  of  Bancshares  that the net  income,
capital and financial  condition of  Bancshares  and the Bank,  thrift  industry
trends and general  economic  conditions  justify the payment of dividends,  and
there can be no assurance that dividends will continue to be paid in the future.

         Since  Bancshares  has no  significant  source  of  income  other  than
dividends from the Bank, the payment of dividends by Bancshares can be dependent
upon receipt of dividends  from the Bank.  Payment of cash dividends by the Bank
is limited by certain federal  regulations  under which the Bank may not declare
or pay a cash  dividend on or  repurchase  any of its common stock if the effect
thereof  would cause its  regulatory  capital to be reduced below (1) the amount
required for the liquidation  account  established in connection with the Bank's
conversion to stock form or (2) the regulatory capital  requirements  imposed by
the OTS. In certain circumstances earnings appropriated to bad debt reserves and
deducted  for  federal  income tax  purposes  may not be  available  to pay cash
dividends  without the payment of federal income taxes by the Bank on the amount
of such earnings removed from the reserves for such purposes at the then current
income tax rate.

         Federal  regulations  impose  certain  additional  limitations  on  the
payment  of  dividends  and  other  capital   distributions   (including   stock
repurchases  and cash  mergers)  by the  Bank.  Under OTS  regulations,  savings
institutions   must  submit  notice  to  the  OTS  prior  to  making  a  capital
distribution if (a) they would not be well capitalized  after the  distribution,
(b) the distribution  would result in the retirement of any of the institution's
common or preferred stock or debt counted as its regulatory  capital, or (c) the
institution is a subsidiary of a holding  company.  A savings  institution  must
make application to the OTS to pay a capital distribution if (x) the institution
would  not  be  adequately  capitalized  following  the  distribution,  (y)  the
institution's   total   distributions   for  the   calendar   year  exceeds  the
institution's net income for the calendar year to date plus its net income (less

                                       4
<PAGE>
distributions)  for the  preceding  two  years,  or (z) the  distribution  would
otherwise violate applicable law or regulation or an agreement with or condition
imposed by the OTS.


                                       5
<PAGE>


                  SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>

                                                                            AT JUNE 30,
                                               ----------------------------------------------------------------------
                                                  2000             1999          1998          1997           1996
                                               ----------       ----------    ----------    ----------    -----------
<S>                                           <C>            <C>           <C>            <C>            <C>
Total assets..............................    $291,192,175   $285,396,885  $250,953,770   $ 200,498,516  $171,235,322
Loans receivable, net.....................     135,626,505    115,162,883   104,580,165      98,642,635    84,131,024
Allowance for loan losses.................       1,231,709      1,329,201     1,468,546       1,492,473     1,283,234
Cash and due from banks...................       3,211,802      3,560,884     1,531,363       1,057,943       422,509
Interest-earning savings deposits.........         236,846      1,693,330     5,073,035      18,273,882    16,869,373
Investment securities:
   Available for sale.....................      34,135,726     33,132,916    40,775,807              --     5,279,625
   Held to maturity.......................              --             --            --      17,260,383            --
Mortgage-backed securities:
    Available for sale....................      98,407,339    113,986,773    58,697,109      18,361,987    12,155,199
    Held to maturity......................              --             --    27,503,257      36,493,086    45,212,891
Deposits..................................     144,873,071    146,296,598   141,931,330     151,192,591   145,919,251
FHLB advances.............................     115,609,029    104,523,419    68,121,068      10,000,000    10,000,000
Note payable..............................         160,000        240,000       320,000         400,000            --
Stockholders' equity......................      28,240,550     32,117,560    37,678,924      37,430,852    14,228,436
Number of:
   Real estate loans outstanding..........           2,915          2,425         3,037           2,093         1,993
   Deposit accounts.......................          17,980         18,526        17,158          15,380        14,163
   Offices open...........................               6              6             6               7             6
</TABLE>
<TABLE>
<CAPTION>
                                                                      YEAR ENDED JUNE 30,
                                               ----------------------------------------------------------------------
                                                  2000            1999         1998         1997             1996
                                               ----------     ----------    ----------   ----------       -----------
<S>                                           <C>            <C>           <C>           <C>              <C>
Interest income...........................    $ 19,808,899   $ 18,274,647  $15,027,677   $12,987,848      $10,333,181
Interest expense..........................      13,099,656     12,093,603    8,942,149     8,195,782        6,766,598
                                             -------------   ------------  -----------   -----------      -----------
Net interest income.......................       6,709,243      6,181,044    6,085,528     4,792,066        3,566,583
Provision for loan losses.................              --             --       24,000       221,671           42,483
                                             -------------   ------------  -----------   -----------      -----------
Net interest income after provision
  for loan losses.........................       6,709,243      6,181,044    6,061,528     4,570,395        3,524,100
Noninterest income (loss).................       1,039,622      1,018,654      710,856       305,067         (773,652)
Noninterest expense.......................       7,304,110      6,847,715    6,407,976     5,765,870        2,350,658
                                             -------------   ------------  -----------   -----------      -----------
Income (loss) before income taxes and
  cumulative effect of change in method
  of accounting  for income taxes and
  investment securities...................         444,755        351,983      364,408      (890,408)         399,790
Provision (benefit) for income taxes......        (341,147)       (63,658)     (20,705)     (280,935)         174,801
                                             --------------  ------------- ------------  -----------      -----------
Income (loss) before cumulative effect of
  change in method of accounting for
  investment  securities..................         785,902        415,641      385,113      (609,473)         224,989
Cumulative effect of change in method of
  accounting for investment securities....              --             --           --            --               --
                                             -------------   ------------  -----------   -----------      -----------
Net income (loss).........................   $     785,902   $    415,641  $   385,113   $  (609,473)(1)  $   224,989
                                             =============    ===========   ==========    ==========       ==========

Earnings per share:
  Basic...................................   $      0.40     $       0.18  $      0.16   $      (.25)     $        --
  Diluted.................................          0.40             0.18         0.16          (.25)              --
Cash dividends declared...................          0.24             0.24         0.20            --               --

<FN>

---------------
1    Noninterest expense and,  therefore,  net loss, for the year ended June 30,
     1997  were  adversely  affected  by the  imposition  of a  special  deposit
     insurance  assessment  in the second  quarter of fiscal 1997 in  connection
     with the  recapitalization of the SAIF. Absent such assessment,  management
     estimates that noninterest expense would have been approximately $4,876,859
     and that net loss would have been approximately $58,286.
</FN>
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>
                                                                         YEAR ENDED JUNE 30,
                                                   ----------------------------------------------------------------------
                                                      2000            1999         1998         1997             1996
                                                   ----------     ----------    ----------   ----------       -----------
<S>                                                 <C>          <C>           <C>           <C>              <C>
PERFORMANCE RATIOS:
   Return on assets (net income (loss) divided
      by average total assets) 1...................    0.27%        0.15%         0.18%        (0.34)%        0.16%
   Return on average equity (net income (loss)
      divided by average equity) 1.................    2.76         1.14          1.02         (3.38)         1.53
   Interest rate spread (combined weighted
      average interest rate earned less combined
      weighted average interest rate cost).........    2.23         1.81          2.11          2.35          2.16
   Net interest margin (net interest income
      divided by average interest-earning assets)..    2.49         2.34          2.96          2.76          2.58
   Ratio of average interest-earning assets
      to average interest-bearing liabilities......  105.42       111.55        119.51        108.76        108.47
   Ratio of noninterest expense to average
      total assets.................................    2.55         2.48          3.00          3.18          1.64

ASSET QUALITY RATIOS:
   Nonperforming assets to total assets
      at end of period.............................    0.33          0.21         0.34          0.29          0.14
   Nonperforming loans to total loans
      at end of period.............................    0.64          0.46         0.75          0.50          1.17
   Allowance for loan losses to total
      loans at end of period.......................    0.85          1.08         1.33          1.46          1.47
   Allowance for loan losses to nonperforming
      loans at end of period.......................  133.95        234.84       177.25        290.50        125.95
   Provision for loan losses to total loans
      at end of period ............................      --            --          .02          0.22          0.05
   Net charge-offs to average loans outstanding....    0.08          0.13          .05           .01          0.02

Capital Ratios:
   Equity to total assets at end of period.........    9.70         11.25        15.01         18.92          8.31
   Average equity to average assets................    9.95         13.19        17.71          9.95         10.25
   Dividend payout ratio 2 ........................   64.50        142.58       137.36            --            --

<FN>

--------------
1    Before cumulative effect  adjustment.  Returns on assets and equity for the
     year ended June 30, 1997 were  adversely  affected by the  imposition  of a
     special deposit  insurance  assessment in the second quarter of fiscal 1997
     in  connection  with  the   recapitalization   of  the  SAIF.  Absent  such
     assessment,  management  estimates  that  return on assets  would have been
     approximately  .07% and that  return  on  average  equity  would  have been
     approximately .70%. See "Management's  Discussion and Analysis of Financial
     Condition and Results of Operations" under Item 7.
2    The  fiscal  year  ended  June 30,  1998,  was the  first  full  year  that
     Bancshares  was  publicly  traded.  Dividend  payout  ratio  is  the  total
     dividends declared divided by net income.
</FN>
</TABLE>

                                       7
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         When used in this  Annual  Report,  the words or phrases  "will  likely
result," "are  expected  to," "will  continue,"  "is  anticipated,"  "estimate,"
"project"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  statements  are  subject  to  certain  risks  and  uncertainties
including changes in economic  conditions in the Company's market area,  changes
in policies by regulatory  agencies,  fluctuations in interest rates, demand for
loans in the  Company's  market area,  and  competition  that could cause actual
results  to differ  materially  from  historical  earnings  and those  presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

         The  Company  does  not  undertake,   and  specifically  disclaims  any
obligation, to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or  unanticipated
events.

GENERAL

         The Bank's principal  business consists of attracting  savings deposits
from the general  public and  investing  those  funds in loans  secured by first
mortgages  on existing  owner-occupied  single-family  residences  in the Bank's
primary  market  area  and,  to a lesser  but  growing  extent,  commercial  and
multi-family  real estate loans and consumer and commercial  business loans. The
Bank also  maintains a  substantial  investment  portfolio  of  mortgage-related
securities,  nontaxable  municipal  securities,  and U.S.  government and agency
securities.

         The  Bank's  net  income is  dependent  primarily  on its net  interest
income,  which is the difference  between  interest  income earned on its loans,
mortgage-backed  securities  and  securities  portfolio  and  interest  paid  on
customers' savings deposits and other borrowings.  The Bank's net income is also
affected  by the  level  of  noninterest  income,  such as  service  charges  on
customers'  deposit  accounts,  net  gains or  losses  on the sale of loans  and
securities  and other fees. In addition,  net income is affected by the level of
noninterest expense, which primarily consists of employee compensation expenses,
occupancy expenses, and other expenses.

         The  financial  condition and results of operations of the Bank and the
thrift  and  banking  industries  as  a  whole  are  significantly  affected  by
prevailing economic conditions, competition and the monetary and fiscal policies
of governmental  agencies.  Lending  activities are influenced by demand for and
supply of credit,  competition  among lenders and the level of interest rates in
the  Bank's  market  area.  The  Bank's  deposit  flows  and  costs of funds are
influenced  by  prevailing  market  rates of  interest,  primarily  on competing
investments, as well as account maturities and the levels of personal income and
savings in the Bank's market area.

POST YEAR 2000 READINESS DISCUSSION

         The  Company  recognized  the  challenges  of the year 2000  issue.  In
compliance with regulatory  guidelines,  a committee was assembled to review the
effects the century change would have on the Company's systems and to assess the
potential  risks that it  presented.  A formal plan of action was  developed  to
address the issue which was approved by the Board of Directors, and had the full
support of senior  management.  An inventory of internal systems,  both computer
and  non-computer  related,  was completed in this process.  Relationships  with
third  party  vendors  were  also  analyzed.   Potential  weaknesses  were  then
documented and  prioritized as to their effect on critical  business  functions.
The Company was already in the process of selecting a new data-processing system
to facilitate its business plan. Year 2000 compliance  became an important issue
in the  selection  process.  A vendor  with a year  2000  compliant  system  was
selected and conversion  was completed in the quarter ended December 1998.  This
system had undergone  thorough testing prior to its  installation.  All the user
departments were involved in review of the test results and in additional onsite
testing.  This testing process revealed no year 2000 related  problems.  Testing

                                       8
<PAGE>

also took place for external  parties with which the Bank exchanges  significant
information.  In addition,  testing was performed on all other mission  critical
information systems.

         Seven  vendors  were  identified  as  "mission  critical".   All  seven
indicated that they were year 2000 compliant.  The Company's  internal operating
systems were tested,  and those that failed were replaced.  Replacement  systems
were then tested and passed.  As a result of this  process,  all of the internal
operating systems were determined to be year 2000 compliant.

         In addressing the year 2000 issue,  the Bank used its current  internal
staffing  with little  reliance on outside  resources.  Major  vendors  provided
compliant software at no additional expense to the Bank. Replacement of the main
data-processing system cost approximately $650,000.

         Following the date rollover into the year 2000,  important  systems and
equipment within the bank,  vendors,  and important  support systems utilized by
the bank were all operating normally. Also, the expected unusual demand for cash
as 1999 ended did not  materialize.  Finally,  the Bank's largest loan customers
were contacted and they all reported normal operations.

ASSET/LIABILITY MANAGEMENT

         Net interest income, the primary component of the Bank's net income, is
determined by the difference or "spread"  between the yield earned on the Bank's
interest-earning  assets and the rates paid on its interest-bearing  liabilities
and the relative  amounts of such assets and  liabilities.  Key  components of a
successful  asset/liability strategy are the monitoring and managing of interest
rate  sensitivity  on both  the  interest-earning  assets  and  interest-bearing
liabilities.  It has been the Bank's  historical policy to mitigate the interest
rate risk inherent in the historical savings institution business of originating
long-term  single-family mortgage loans funded by short-term savings deposits by
maintaining  substantial  liquidity and capital levels to withstand  unfavorable
movements in market  interest rates,  by purchasing  investment  securities with
adjustable-rates  and/or short terms to maturity and by  originating  relatively
shorter term consumer loans. In the future,  however,  it is anticipated that as
the Bank sells more of its long term loan  originations  and  originates for its
portfolio more  commercial and  multi-family  real estate loans and consumer and
commercial   business  loans  with  relatively  shorter  terms  to  maturity  or
repricing,  the Bank's  interest  rate risk exposure may decline  somewhat.  The
matching of the Bank's assets and  liabilities  may be analyzed by examining the
extent to which its assets and  liabilities  are interest rate  sensitive and by
monitoring both its interest rate sensitivity  "gap" and the expected effects of
interest rate changes on its net portfolio value.

         For the fiscal year ending June 30, 2000,  the Bank  initiated a modest
growth strategy,  which replaced  investment  securities with loans and utilized
Federal Home Loan Bank borrowings to fund growth greater than deposit levels.

         Interest Rate  Sensitivity  Gap. An asset or liability is interest rate
sensitive within a specific time period if it will mature or reprice within that
time period.  The interest  rate  sensitivity  gap is defined as the  difference
between the amount of  interest-earning  assets  maturing or repricing  within a
specific time period and the amount of interest-bearing  liabilities maturing or
repricing within that time period. A gap is considered  positive when the amount
of  interest  rate  sensitive   assets  exceeds  the  amount  of  interest  rate
liabilities.  A gap is  considered  negative  when the amount of  interest  rate
sensitive  liabilities  exceeds the amount of interest  rate  sensitive  assets.
During a period of rising interest rates, a negative gap would tend to adversely
affect net interest income while a positive gap would tend to positively  affect
net interest  income.  Similarly,  during a period of falling  interest rates, a
negative  gap would  tend to  positively  affect  net  interest  income  while a
positive gap would tend to adversely affect net interest income.

         At  June  30,  2000,  the  Bank's  total  interest-bearing  liabilities
maturing or repricing within one year exceeded its total interest-earning assets
maturing or repricing in the same period, and the Bank's cumulative one-year gap
ratio totaled a negative 23.4%. In addition,  the Bank's total  interest-earning
assets maturing or repricing within five years were slightly less than its total
interest-bearing  liabilities  maturing or repricing in the same period, and the
Bank's  cumulative  five-year gap ratio totaled a negative  8.7%. The Bank's gap
measures  indicate  that net  interest  income  would be exposed to increases in
interest rates in the short term, but would be much less exposed to increases in
interest rates over the longer term.


                                       9
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES

         The  following  table sets forth  information  regarding  the Company's
average  interest-earning  assets and interest-bearing  liabilities and reflects
the  average  yield  of   interest-earning   assets  and  the  average  cost  of
interest-bearing  liabilities for the periods  indicated.  Average  balances are
derived from  monthly  balances.  The table also  presents  information  for the
periods  indicated with respect to the difference  between the weighted  average
yield earned on  interest-earning  assets and the weighted  average rate paid on
interest-bearing   liabilities,   or  "interest   rate  spread,"  which  savings
institutions have traditionally  used as an indicator of profitability.  Another
indicator  of an  institution's  net  interest  income  is  its  "net  yield  on
interest-earning  assets,"  which  is its net  interest  income  divided  by the
average balance of  interest-earning  assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning  assets
and interest-bearing  liabilities.  The yield on non-taxable  securities has not
been adjusted to a tax equivalent basis.  Yield on available for sale securities
is based on  amortized  cost.  Loans on a  nonaccrual  basis are included in the
computation of the average balance of loans  receivable.  Loan fees deferred and
accreted into income are included in interest earned. Whenever  interest-earning
assets equal or exceed interest-bearing  liabilities, any positive interest rate
spread will generate net interest income.
<TABLE>
<CAPTION>

                                                                           Year Ended June 30,
                                                 --------------------------------------------------------------------------
                                                              2000                                     1999
                                                 --------------------------------      ------------------------------------
                                                                          Average                                   Average
                                                 Average      Interest     Yield/      Average         Interest     Yield/
                                                 Balance      Earned/Paid  Rate        Balance       Earned/Paid     Rate
                                                 -------      -----------  ------      -------       -----------    ------
<S>                                           <C>             <C>          <C>        <C>            <C>             <C>
Interest-earning assets:
  Loans receivable.........................   $123,535,536    $10,491,741  8.49       $108,211,367   $ 8,984,708     8.30%
  Investment and mortgage-backed securities
    Taxable................................    112,065,588      7,352,290  6.56        127,823,503     7,879,802     6.16
    Nontaxable.............................     27,102,813      1,479,536  5.46         18,542,595       906,755     4.89
  Other interest-earning assets............      6,536,156        485,332  7.43          9,895,390       503,382     5.09
                                             -------------    -----------  ----       ------------   -----------     ----
    Total interest-earning assets .........   $269,240,093     19,808,899  7.36       $264,472,855    18,274,647     6.91
Non-interest-earning assets................     16,659,326                              11,984,411
                                             -------------                            ------------
    Total assets...........................   $285,899,419                            $276,457,266
                                               ===========                             ===========


Interest-bearing liabilities:
  Deposits.................................   $142,663,307      6,507,174  4.56       $141,719,606     6,620,808     4.67
  FHLB advances............................    112,554,831      6,579,482  5.85         95,124,165     5,453,795     5.73
  Notes payable............................        175,082         13,000  7.43            253,333        19,000     7.50
                                             -------------    -----------  ----       ------------   -----------     ----
    Total interest-bearing liabilities.....    255,393,220     13,099,656  5.13        237,097,104    12,093,603     5.10
Non-interest-bearing liabilities...........      2,046,766                               2,903,969
                                             -------------                            ------------
    Total liabilities......................    257,439,986                             240,001,073
Equity.....................................     28,459,433                              36,456,193
                                             -------------                            ------------
    Total liabilities and equity...........   $285,899,419                            $276,457,266
                                               ===========                             ===========

Net interest income........................                   $ 6,709,243                            $ 6,181,044
                                                               ==========                             ==========

Net interest rate spread...................                                2.23%                                     1.81%
                                                                           ====                                     =====
Net yield on interest-earning assets.......                                2.49%                                     2.34%
                                                                           ====                                      ====
Ratio of average interest-earning assets
  to average interest-bearing liabilities..                              105.42%                                   111.55%
                                                                         ======                                    ======

<CAPTION>
                                                         Year Ended June 30,
                                                 -----------------------------------
                                                              1998
                                                 -----------------------------------
                                                                             Average
                                                 Average      Interest       Yield/
                                                 Balance      Earned/Paid     Rate
                                                 -------      -----------     ------
<S>                                             <C>            <C>             <C>

Interest-earning assets:
  Loans receivable.........................     $105,237,178   $  8,766,232     8.33%
  Investment and mortgage-backed securities
    Taxable................................       77,987,004      5,017,211     6.43
    Nontaxable.............................        9,010,567        445,122     4.94
  Other interest-earning assets............       13,402,789        799,112     5.96
                                                ------------   ------------     ----
    Total interest-earning assets .........     $205,637,538     15,027,677     7.31
Non-interest-earning assets................        7,874,964
                                                ------------
    Total assets...........................     $213,512,502
                                                ============

Interest-bearing liabilities:
  Deposits.................................     $144,602,264      7,272,554     5.03
  FHLB advances............................       27,108,184      1,644,595     6.07
  Notes payable............................          352,142         25,000     7.10
                                                ------------   ------------     ----
    Total interest-bearing liabilities.....      172,062,590      8,942,149     5.20
Non-interest-bearing liabilities...........        3,645,847
                                                ------------
    Total liabilities......................      175,708,437
Equity.....................................       37,804,065
                                                ------------
    Total liabilities and equity...........     $213,512,502
                                                ============

Net interest income........................                    $  6,085,528
                                                               ============

Net interest rate spread...................                                     2.11%
                                                                               =====
Net yield on interest-earning assets.......                                     2.96%
                                                                              ======
Ratio of average interest-earning assets
  to average interest-bearing liabilities..                                   119.51%
                                                                              ======
</TABLE>

                                       10
<PAGE>
RATE/VOLUME ANALYSIS

         The  following  table  analyzes  dollar  amounts of changes in interest
income   expense   for  major   components   of   interest-earning   assets  and
interest-bearing  liabilities.  The  table  distinguishes  between  (i)  changes
attributable  to volume  (changes  in volume  multiplied  by the prior  period's
rate),  (ii) changes  attributable  to rate  (changes in rate  multiplied by the
prior  period's  volume)  and (iii)  changes  in  rate/volume  (changes  in rate
multiplied by changes in volume).
<TABLE>
<CAPTION>
                                                              Year Ended June 30,
                             -------------------------------------------------------------------------------------
                                2000            vs.           1999          1999           vs.             1998
                             ----------------------------------------     ----------------------------------------
                                         Increase (Decrease)                        Increase (Decrease)
                                               Due to                                    Due to
                             ----------------------------------------     ----------------------------------------
                                                     Rate/                                      Rate/
                             Volume        Rate     Volume      Total     Volume     Rate       Volume     Total
                             ------        ----     ------      -----     ------     ----       ------     ------
                                                                 (In thousands)
<S>                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
  Loans receivable ........   $ 1,272    $   206    $    29    $ 1,507    $   248    $   (28)   $    (2)   $   218
  Investment securities and
    mortgage- backed
    securities ............      (553)       612        (14)        45      3,677       (214)      (138)     3,325
  Other interest-earning
     assets ...............      (171)       231        (78)       (18)      (209)      (117)        30       (296)
                              -------------------------------------------------------------------------------------
     Total interest-earning
        assets ............       548      1,049        (63)     1,534      3,716       (359)      (110)     3,247
                              -------    -------    -------    -------    -------    -------    -------    -------

Interest expense:
  Deposits ................        44       (157)        (1)      (114)      (145)      (517)        10       (652)
  FHLB advances ...........       999        107         20      1,126      4,126        (90)      (227)     3,809
  Note payable ............        (6)        --         --         (6)        (7)         1         --         (6)
                              -------------------------------------------------------------------------------------
     Total interest-bearing
        liabilities .......     1,037        (50)        19      1,006      3,974       (606)      (217)     3,151
                              -------    -------    -------    -------    -------    -------    -------    -------
Change in net interest
  income ..................   $  (489)   $ 1,099    $   (82)   $   528    $  (258)   $   247    $   107    $    96
                              =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND 1999

     The  Company had  consolidated  total  assets of $291.2  million and $285.4
million at June 30, 2000 and 1999, respectively.  During the twelve-month period
ended June 30, 2000 the Company  experienced an increase in its net consolidated
loan portfolio from $115.2 million at June 30, 1999, to $135.6  million.  During
this  same  period,   investments  and  mortgage-backed   securities  and  other
short-term  interest-earning  assets  decreased  from $148.8 million at June 30,
1999 to $132.8 million at June 30, 2000.

     Deposits decreased from $146.3 million at June 30,1999 to $144.9 million at
June  30,  2000.  This  represents  a one  percent  decrease  in  deposits.  The
outstanding  balances of FHLB  borrowings were $115.6 million and $104.5 million
at June 30, 2000 and June 30,  1999,  respectively.  The need to  increase  FHLB
borrowings  was primarily due to loan demand and the decrease in deposits  being
greater than investment securities paydowns.

     Stockholders'  equity amounted to $28.2 million at June 30, 2000, and $32.1
million at June 30,  1999.  The  changes  in equity  were  primarily  due to the
purchase of treasury stock,  the changes to unrealized gain (loss) on investment
securities  available  for sale,  and the  Company's  net income  earned for the
fiscal year ended June 30, 2000. At June 30, 2000, the Bank's regulatory capital
exceeded all applicable regulatory capital requirements and meets the definition
of "well" capitalized under the Prompt Corrective Action provisions.


                                       11
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2000 AND 1999

         Net  Income.   Net  income  for  the  year  ended  June  30,  2000  was
approximately  $786,000  compared to net income of  $416,000  for the year ended
June 30, 1999. The changes  resulted  primarily from an increase in net interest
income of $528,000, an increase in the tax benefit of $277,000, less an increase
in non-interest expense of $457,000.

         Net Interest  Income.  Net interest  income for the year ended June 30,
2000 was $6.7 million,  or $528,000  more than net interest  income for the year
ended June 30, 1999.  This  improvement  is primarily  due to rate  increases on
interest  earning  assets,  offset  by  volume  increases  on  interest  bearing
liabilities.  The total average  interest earning assets increased $4.8 million,
and the yield  increased  from 6.91% to 7.36%  primarily due to a 19 basis point
increase in the average yield on loans while total average loans increased $15.3
million. Total average interest bearing liabilities increased $18.3 million, and
the cost increased slightly from 5.10% to 5.13%.

         Provision  for Loan Losses.  During the year ended June 30,  2000,  the
Bank's  management  continued its review of loan files.  Based on these reviews,
management  did not make any  provisions  for loan losses in the year ended June
30,  2000.  The  allowance  for loan  losses of $1.2  million  at June 30,  2000
represented 0.85% of gross outstanding loans. Nonperforming loans as of June 30,
2000 as a percent of total  loans  increased  to 0.64% from 0.46% as of June 30,
1999.

         Management   evaluates  the  carrying   value  of  the  loan  portfolio
periodically  and provisions are made if necessary.  While  management  uses the
best  information  available  to  make  evaluations,  future  provisions  to the
allowance  may  be  necessary  if  conditions  differ   substantially  from  the
assumptions  used in making the  evaluations.  In addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's  allowance  for loan  losses.  Such  agencies may require the Bank to
recognize   changes  to  the  allowance  based  upon  their  judgments  and  the
information available to them at the time of their examination.

         There were no significant  changes in loan terms during the year, , nor
were there  significant  changes in the  estimation  methodologies  employed  or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to modify loss experience factors during the year.

         Noninterest Income.  Noninterest income is comprised primarily of gains
on the sales of loans and  service  charges  on  deposit  accounts.  Noninterest
income for the year ended June 30, 2000 was approximately $1,040,000 compared to
approximately  $1,019,000  for the year ended June 30,  1999.  This  increase of
approximately $21,000 is the result of gains on sales of loans and the growth of
the Bank's  checking  and  savings  accounts,  resulting  in  increased  service
charges,  less a decrease in gains on sales of investment  securities  available
for sale of $262,000.

         Noninterest  Expense.  The major components of noninterest  expense are
salaries and employee  benefits paid to or on behalf of the Company's  employees
and  directors,   professional   fees  paid  to  consultants,   attorneys,   and
accountants,  occupancy  expense for ownership and  maintenance of the Company's
buildings,  furniture,  and  equipment,  and  data  processing  expenses.  Total
noninterest  expense for the year ended June 30, 2000 was $7.3 million  compared
to $6.8 million for the year ended June 30, 1999.  Significant components of the
increase  in  non-interest  expense  are a $330,000  increase  in  salaries  and
benefits primarily resulting from increased staff, an increase of $93,000 in net
occupancy expense, a $152,000 increase in other expenses, and a $30,000 decrease
in professional  fees. It is anticipated by management that future  professional
fees will continue to decline.

         In light of the substantial  costs associated with the recent,  pending
and planned expansions of the Bank's activities, facilities and staff, including
additional costs associated with adding staff,  building or renovating branches,
and introducing new deposit and loan products and services,  it is expected that
the Bank's noninterest expense levels may remain high relative to the historical
levels for the Bank, as well as the prevailing  levels for institutions that are
not undertaking such expansions, for an indefinite period of time, as management
implements the Bank's  business  strategy.  Among the  activities  planned or in
process  are a full  service  branch in  Bryant,  Arkansas  in place of the loan
production  office,  and continued  increased loan  originations in the areas of
multi-family residential, commercial business, and consumer loans.

                                       12
<PAGE>

Income  Taxes.  The  effective  income tax rates for the  Company for the fiscal
years ended June 30, 2000 and 1999 were (76.7)% and (18.1)%,  respectively.  The
variance in the effective rate from the expected statutory rate is due primarily
to tax exempt interest.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998

         Net Income.  Net income for the year ended June 30,  1999 was  $416,000
compared to net income of $385,000 for the year ended June 30, 1998. The changes
resulted  primarily  from an increase  in net  interest  income of  $96,000,  an
increase in non-interest income of $308,000, an increase in non-interest expense
of $440,000, and an increase in the tax benefit of $43,000.

         Net Interest  Income.  Net interest  income for the year ended June 30,
1999 was $6.2  million,  or $96,000 more than net  interest  income for the year
ended June 30, 1998. The total average  interest  earning assets increased $58.8
million, but the yield decreased from 7.31% to 6.91% primarily due to a 28 basis
point  decrease  in  the  average  yield  on  investments  while  total  average
investments  increased  $59.4  million.  Also, of the $59.4 million  increase in
average  investments,  $9.5 million was in  nontaxable  securities at an average
rate of 4.89%.

         Provision  for Loan Losses.  During the year ended June 30,  1999,  the
Bank's  management  continued its review of loan files.  Based on these reviews,
management  did not make any  provisions  for loan losses in the year ended June
30, 1999, compared to $24,000 in the year ended June 30, 1998. The allowance for
loan losses of $1.3 million at June 30, 1999  represented  1.08% of  outstanding
loans.  Nonperforming  loans as of June 30,  1999 as a  percent  of total  loans
decreased to .46% from .75% as of June 30, 1998.

         Management   evaluates  the  carrying   value  of  the  loan  portfolio
periodically  and the provision is adjusted if necessary.  While management uses
the best information  available to make evaluations,  future  adjustments to the
provision  may  be  necessary  if  conditions  differ   substantially  from  the
assumptions  used in making the  evaluations.  In addition,  various  regulatory
agencies, as an integral part of their examination process,  periodically review
the Bank's  allowance  for loan  losses.  Such  agencies may require the Bank to
recognize   changes  to  the  allowance  based  upon  their  judgments  and  the
information available to them at the time of their examination.

         During the year ended June 30, 1999,  management continued to emphasize
growth in land,  multi-family,  non-residential real estate loans and commercial
loans.  These loans generally are considered to have a greater  inherent risk of
loss due to the  concentration  with one or few borrowers and the  dependence of
the collateral's  performance on a broad array of economic factors.  As a result
of these  efforts,  these types of loans  increased  from $51.2 million to $60.0
million,  or 17.2%. As a result of this increased emphasis in areas of generally
higher risk,  the amount of the  allowance  allocated to these lending types has
increased.

         There  were no  significant  changes  in  concentrations  or loan terms
during the year, other than that mentioned in the preceding paragraph,  nor were
there  significant   changes  in  the  estimation   methodologies   employed  or
assumptions utilized. Nonperforming loan and loss trends did not indicate a need
to modify loss experience factors during the year.

         Noninterest Income.  Noninterest income is comprised primarily of gains
on the sales of investment securities,  and service charges on deposit accounts.
Noninterest income for the year ended June 30, 1999 was approximately $1,019,000
compared  to  approximately  $711,000  for the year  ended June 30,  1998.  This
increase of approximately  $308,000 is the result of gains on sales of loans and
investment  securities  and  the  growth  of the  Bank's  checking  and  savings
accounts,  both in dollars and in numbers of  accounts,  resulting  in increased
service charges.

         Noninterest  Expense.  The major components of noninterest  expense are
salaries and employee  benefits paid to or on behalf of the Company's  employees
and directors,  occupancy expense for ownership and maintenance of the Company's
buildings,  furniture, and equipment, data processing expenses, and professional
fees paid to consultants,  attorneys, and accountants. Total noninterest expense
for the year ended June 30, 1999 was $6.85 million compared to $6.41 million for
the  year  ended  June 30,  1998.  Significant  components  of the  increase  in
non-interest  expense are the  increase of  $234,000  in salaries  and  benefits
resulting  from  increased  staff  and  the  implementation  of  the  Management
Recognition  Plan, an increase of $583,000 in professional  fees, an increase of
$176,000 in net occupancy  expense,  and



                                       13
<PAGE>
increase of $101,000 in data processing  expense,  while all other  non-interest
expenses  decreased  $654,000.  It is  anticipated  by  management  that  future
professional fees will be significantly less than the year ended June 30, 1999.

         In light of the substantial  costs associated with the recent,  pending
and planned expansions of the Bank's activities, facilities and staff, including
additional costs associated with adding staff,  building or renovating branches,
and introducing new deposit and loan products and services,  it is expected that
the Bank's noninterest expense levels may remain high relative to the historical
levels for the Bank, as well as the prevailing  levels for institutions that are
not undertaking such expansions, for an indefinite period of time, as management
implements  the Bank's  business  strategy.  Among the  activities  planned  are
continued increased loan originations in the areas of multi-family  residential,
commercial business, and consumer loans.

     Income Taxes. The effective income tax rates for the Company for the fiscal
years ended June 30, 1999 and 1998 were  (18.1)% and (5.7)%,  respectively.  The
variance in the effective rate from the expected statutory rate is due primarily
to tax exempt interest.

SOURCES OF CAPITAL AND LIQUIDITY

         The Company has no  business  other than that of the Bank.  Bancshares'
primary  sources of liquidity are cash,  dividends paid by the Bank and earnings
on  investments  and loans.  In  addition,  the Bank is  subject  to  regulatory
limitations with respect to the payment of dividends to Bancshares.

         The Bank has historically maintained substantial levels of capital. The
assessment of capital  adequacy is dependent on several factors  including asset
quality,  earnings  trends,  liquidity and economic  conditions.  Maintenance of
adequate  capital levels is integral to provide  stability to the Bank. The Bank
seeks to maintain  substantial  levels of regulatory  capital to give it maximum
flexibility in the changing regulatory  environment and to respond to changes in
the market and economic conditions.

         The Bank's primary sources of funds are savings deposits, proceeds from
principal  and  interest  payments  on  loans  and  mortgage-backed  securities,
interest payments and maturities of investment securities,  and earnings.  While
scheduled  principal  repayments  on loans and  mortgage-backed  securities  and
interest payments on investment  securities are a relatively  predictable source
of funds,  deposit flows and loan and  mortgage-backed  prepayments  are greatly
influenced by general interest rates, economic conditions, competition and other
factors.  The Bank does not solicit savings  deposits outside of its market area
through brokers or other financial institutions.

         At June 30, 2000, the Bank had designated  securities with a fair value
of  approximately  $132.5 million as available for sale. In addition to internal
sources of funding,  the Bank as a member of the FHLB has substantial  borrowing
authority with the FHLB. The Bank's use of a particular source of funds is based
on need, comparative total costs and availability.

         At June 30, 2000, the Bank had outstanding  approximately  $7.5 million
in commitments to originate loans (including  unfunded  portions of construction
loans)  and  $564,000  in unused  lines of credit.  At the same date,  the total
amount of  certificates of deposit which were scheduled to mature in one year or
less was $77.9 million.  Management anticipates that the Bank will have adequate
resources  to meet its current  commitments  through  internal  funding  sources
described  above.  Historically,  the Bank has been able to retain a significant
amount of its savings deposits as they mature.

         Management  is  not  aware  of  any  current   recommendations  by  its
regulatory  authorities,  legislation,  competition,  trends  in  interest  rate
sensitivity,  new accounting guidance or other material events and uncertainties
that would have a material  effect on the Bank's  ability to meet its  liquidity
demands.


                                       14
<PAGE>

                                   MARKET RISK

         Market risk reflects the risk of economic loss  resulting  from adverse
changes in market prices and interest  rates.  The risk of loss can be reflected
in diminished current market values and/or reduced potential net interest income
in future periods. The Company's market risk arises primarily from interest rate
risk  inherent in lending and  deposit-taking  activities.  The Company does not
maintain a trading  account for any class of  financial  instrument  nor does it
engage in hedging activities or purchase  derivative  instruments.  Furthermore,
the Company is not subject to foreign  currency  exchange rate risk or commodity
price risk.

         The OTS currently requires savings institutions to measure and evaluate
interest rate risk on a quarterly basis. A savings  institution's  interest rate
risk is measured in terms of the sensitivity of its net portfolio value (NPV) to
changes in interest  rates.  Net portfolio value is defined,  generally,  as the
present  value of expected  cash inflows from  existing  assets and  off-balance
sheet  contracts  less the present value of expected cash outflows from existing
liabilities and off-balance  sheet  contracts.  The Bank presently  monitors and
evaluates the potential impact of interest rate changes upon the market value of
the Bank's NPV on a quarterly basis. These  computations  estimate the effect on
the Bank's NPV of sudden and sustained 100 Basis Points (BP) to 300 BP increases
and  decreases in market  interest  rates.  The Bank's  Board of  Directors  has
adopted an interest rate risk policy which establishes  maximum decreases in the
Bank's estimated NPV of 20%, 35%, and 55% in the event of assumed  immediate and
sustained  100 BP to 300 BP,  increases or decreases in market  interest  rates,
respectively.  In addition,  in the event of the assumed immediate and sustained
100 BP, 200 BP, or 300 BP, increase or decrease in market  interest  rates,  the
board  has set as  minimum  post  shock NPV  ratio of  6.00%,  6.50%,  and 7.00%
respectively.


                                       15
<PAGE>


         The following  tables present the Bank's  projected change in NPV as of
June 30, 2000 and 1999, as calculated by OTS, based on  information  provided to
the OTS by the Bank. Based on such  information,  from June 30, 1999 to June 30,
2000,  the  Bank's  interest  rate  risk has  become  more  liability  sensitive
throughout the period.
<TABLE>
<CAPTION>

                                                              2000
----------------------------------------------------------------------------------------------------------------
          CHANGE IN                                                                    BP CHANGE IN NPV
         INTEREST RATES             NET PORTFOLIO VALUE                NPV       AS  A  PERCENTAGE  OF ESTIMATED
             IN BP           -----------------------------------      RATIO         MARKET VALUE OF ASSETS
         (RATE SHOCK)        AMOUNT       $ CHANGE     % CHANGE       -----         ----------------------
         ------------        ------       --------     --------

            <S>             <C>            <C>            <C>         <C>                <C>
            +300            $19,349       $(14,482)       (43)%        7.31 %            (428)
            +200             23,842         (9,989)       (30)         8.73              (286)
            +100             28,693         (5,138)       (15)        10.17              (142)
              +0             33,831                                   11.59
            -100             38,838          5,007         15         12.87               128
            -200             42,604          8,773         26         13.71               212
            -300             45,416         11,585         34         14.23               264

<CAPTION>
                                                              1999
----------------------------------------------------------------------------------------------------------------
          CHANGE IN                                                                    BP CHANGE IN NPV
         INTEREST RATES             NET PORTFOLIO VALUE                NPV       AS  A  PERCENTAGE  OF ESTIMATED
             IN BP           -----------------------------------      RATIO         MARKET VALUE OF ASSETS
         (RATE SHOCK)        AMOUNT       $ CHANGE     % CHANGE       -----         ----------------------
         ------------        ------       --------     --------

            <S>             <C>            <C>            <C>         <C>                <C>
            +300            $23,862        $(7,923)       (25)%        9.27 %            (207)
            +200             26,884         (4,901)       (15)        10.15              (120)
            +100             29,710         (2,075)        (7)        10.89               (45)
              +0             31,785                                   11.35
            -100             32,126            341          1         11.23               (12)
            -200             31,055           (730)        (2)        10.67               (68)
            -300             30,435         (1,350)        (4)        10.25              (110)

</TABLE>
         At June 30, 2000, it was estimated  that the Bank's NPV could  decrease
15%,  30%,  and 43% in the  event  of 100  BP,  200  BP,  and 300 BP  respective
increases in market interest rates,  and could increase 15%, 26%, and 34% in the
event of  equivalent  decreases in market  interest  rates.  These  calculations
indicate  that  the  Bank's  NPV  could be  adversely  affected  by  significant
increases in interest rates. The increase in interest-rate risk compared to June
30, 1999 is primarily due to replacing  maturing FHLB advances with shorter-term
FHLB advances. This strategy is coupled with anticipated deposit growth from the
Bank's new full service branch in Bryant,  Arkansas,  and existing markets which
will be used to fund loan growth and reduce these  shorter-term FHLB borrowings.
Management  reviews  the  Bank's  borrowing  position,   expected  interest-rate
movements,  and  current  strategy  at least  monthly  to  determine  whether to
continue to roll maturing FHLB advances short term.

Changes in interest rates also may affect the Bank's net interest  income.  In a
declining rate environment,  more borrowers would be expected to refinance fixed
rate loans at lower  rates.  This  would  have the effect of cutting  the Bank's
yield on fixed rate assets at a time when its liability costs would decline more
slowly.  In a rising  rate  environment  fewer  borrowers  would be  expected to
refinance   while  more   depositors   would  be  expected  to  liquidate  their
certificates  of  deposit  and  reinvest  them in higher  rate  certificates  of
deposit. Depositors would tend to exhibit this behavior once rates had increased
sufficiently to offset early withdrawal penalties. This would have the effect of
maintaining the asset yield at a time when liability costs would tend to rise.

         The Bank's Board of Directors is  responsible  for reviewing the Bank's
asset and liability  policies.  On at least a quarterly basis, the Board reviews
interest  rate risk and trends,  as well as  liquidity  and  capital  ratios and
requirements.  The  Bank's  management  is  responsible  for  administering  the
policies and determinations of the Board of Directors with respect to the Bank's
asset and liability goals and strategies. At June 30, 2000, the Bank's estimated
changes in net interest  income and NPV were within the targets  established  by
the Board of Directors.

                                       16
<PAGE>
         Computations  of  prospective  effects of  hypothetical  interest  rate
changes,  such as the above  computations,  are based on  numerous  assumptions,
including relative levels of market interest rates, loan prepayments and deposit


decay,  and should not be relied upon as indicative of actual results.  Further,
the  computations  do not  contemplate  any  actions the Bank may  undertake  in
response to changes in interest rates.


                                       17
<PAGE>


INDEPENDENT AUDITORS' REPORT


The Board of Directors of
HCB Bancshares, Inc.
Camden, Arkansas

We have audited the accompanying  consolidated statements of financial condition
of HCB  Bancshares,  Inc. and its subsidiary (the "Company") as of June 30, 2000
and 1999, and the related  consolidated  statements of income and  comprehensive
income,  stockholders' equity, and cash flows for each of the three years in the
period ended June 30, 2000. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of HCB  Bancshares,  Inc.  and its
subsidiary at June 30, 2000 and 1999,  and the results of their  operations  and
their cash flows for each of the three years in the period  ended June 30, 2000,
in conformity with accounting principles generally accepted in the United States
of America.



/s/ Deloitte & Touche, LLP

August 16, 2000





                                       18
<PAGE>

HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------

ASSETS                                                                                  2000                1999
<S>                                                                              <C>                 <C>
Cash and due from banks                                                          $      3,211,802    $      3,560,884
Interest bearing deposits with banks                                                      137,846             975,330
                                                                                   --------------      --------------

  Cash and cash equivalents                                                             3,349,648           4,536,214
Other interest bearing deposits with banks                                                 99,000             718,000
Investment securities:
  Available for sale, at fair value (amortized cost at June 30, 2000
    and 1999, of $139,920,654 and $151,505,753, respectively)                         132,543,065         147,119,689
Loans receivable, net of allowance at June 30, 2000 and 1999,
    of $1,231,709 and $1,329,201, respectively                                        135,626,505         115,162,883
Accrued interest receivable                                                             1,852,887           1,717,823
Federal Home Loan Bank stock                                                            6,223,500           5,379,100
Premises and equipment, net                                                             6,552,484           6,500,704
Goodwill, net                                                                             281,250             356,250
Real estate held for sale                                                                 359,608             463,478
Other assets                                                                            4,304,228           3,442,744
                                                                                    -------------       -------------
TOTAL                                                                              $  291,192,175      $  285,396,885
                                                                                    =============       =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
  Deposits                                                                         $  144,873,071      $  146,296,598
  Federal Home Loan Bank advances                                                     115,609,029         104,523,419
  Advance payments by borrowers for
      taxes and insurance                                                                 139,554             128,442
  Accrued interest payable                                                                917,415             815,197
  Note payable                                                                            160,000             240,000
  Other liabilities                                                                     1,252,556           1,275,669
                                                                                   --------------      --------------
                                    Total liabilities                                 262,951,625         253,279,325
                                                                                   --------------      --------------

COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)
STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value,  10,000,000 shares authorized,  2,645,000 shares
     issued, 2,046,580 and 2,329,544 shares
     outstanding at June 30, 2000 and 1999, respectively                                   26,450              26,450
  Additional paid-in capital                                                           25,945,850          25,993,872
  Unearned ESOP shares                                                                 (1,269,600)         (1,481,200)
  Unearned MRP shares                                                                    (220,104)           (390,056)
  Accumulated other comprehensive loss                                                 (4,401,668)         (2,620,673)
  Retained earnings                                                                    14,110,667          13,831,694
                                                                                   --------------      --------------

                                                                                       34,191,595          35,360,087
                                                                                   --------------      --------------
Treasury stock, at cost, 598,420 and 315,456
  shares June 30, 2000 and 1999 respectively                                           (5,951,045)         (3,242,527)
                                                                                   --------------      --------------

                                    Total stockholders' equity                         28,240,550          32,117,560
                                                                                   --------------      --------------

TOTAL                                                                             $   291,192,175     $   285,396,885
                                                                                   ==============      ==============
</TABLE>

See notes to consolidated financial statements.


                                       19
<PAGE>
HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                 2000              1999              1998
<S>                                                          <C>                <C>               <C>
INTEREST INCOME:
   Interest and fees on loans                                $  10,491,741      $  8,984,708      $  8,766,232
   Investment securities:
     Taxable                                                     7,352,290         7,879,802         5,017,211
     Nontaxable                                                  1,479,536           906,755           445,122
   Other                                                           485,332           503,382           799,112
                                                              ------------     -------------     -------------

        Total interest income                                   19,808,899        18,274,647        15,027,677

INTEREST EXPENSE:
   Deposits                                                      6,507,174         6,620,808         7,272,554
   Federal Home Loan Bank advances                               6,579,482         5,453,795         1,644,595
   Note payable                                                     13,000            19,000            25,000
                                                              ------------     -------------     -------------

        Total interest expense                                  13,099,656        12,093,603         8,942,149
                                                              ------------     -------------     -------------

NET INTEREST INCOME                                              6,709,243         6,181,044         6,085,528

PROVISION FOR LOAN LOSSES                                               --                --            24,000
                                                              ------------     -------------     -------------

NET INTEREST INCOME AFTER PROVISION
   FOR LOAN LOSSES                                               6,709,243         6,181,044         6,061,528

NONINTEREST INCOME:
   Service charges on deposit accounts                             555,292           328,958           291,684
   Gain on sales of investment securities
     available for sale                                                 --           261,996            22,257
   Other                                                           484,330           427,700           396,915
                                                              ------------     -------------     -------------

        Net noninterest income                                   1,039,622         1,018,654           710,856
                                                              ------------     -------------     -------------

NONINTEREST EXPENSES:
   Salaries and employee benefits                                3,904,807         3,574,562         3,340,936
   Net occupancy expense                                           900,948           808,255           632,190
   Federal insurance premiums                                       79,692            88,035            91,448
   Data processing                                                 326,528           397,585           297,077
   Professional fees                                             1,050,873         1,080,916           497,519
   Loss on impaired investment security                                 --             9,000           150,356
   Amortization of goodwill                                         75,000            75,000           123,133
   Other                                                           966,262           814,362         1,275,317
                                                              ------------     -------------     -------------

        Total noninterest expenses                               7,304,110         6,847,715         6,407,976
                                                              ------------     -------------     -------------

INCOME BEFORE INCOME TAXES                                         444,755           351,983           364,408

INCOME TAX BENEFIT                                                (341,147)          (63,658)          (20,705)
                                                              ------------     -------------     -------------

NET INCOME                                                   $     785,902       $   415,641       $   385,113
                                                              ------------     -------------     -------------

                                                                                                        (Continued)
</TABLE>

                                       20
<PAGE>

HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>


                                                                 2000              1999              1998
<S>                                                           <C>               <C>                  <C>
OTHER COMPREHENSIVE INCOME (LOSS),
   NET OF TAX
     Unrealized holding gain (loss) on securities
       arising during period                                  $ (1,780,995)     $ (2,501,663)        $ 101,950
     Reclassification adjustment for
       gains included in net income                                     --          (172,917)          (14,690)
                                                              ------------      -------------       ----------

                  Other comprehensive income (loss)             (1,780,995)       (2,674,580)           87,260
                                                              ------------      -------------       ----------

COMPREHENSIVE INCOME (LOSS)                                     $ (995,093)     $ (2,258,939)        $ 472,373
                                                              ============      =============       ==========

WEIGHTED AVERAGE COMMON SHARES
   OUTSTANDING                                                   1,988,984         2,344,083         2,462,084
                                                              ============      ============        ==========

EARNINGS PER SHARE:
   Basic                                                    $       0.40      $       0.18          $    0.16
                                                                    ====              ====               ====

   Diluted                                                  $       0.40      $       0.18          $    0.16
                                                                    ====              ====               ====

DIVIDENDS PER SHARE                                         $       0.24      $       0.24          $    0.20
                                                                    ====              ====               ====


                                                                                                        (Concluded)
</TABLE>



See notes to consolidated financial statements.

                                       21
<PAGE>

HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                    ADDITIONAL                                 ACCUMULATED
                                    ISSUED          ADDITIONAL     UNEARNED       UNEARNED        OTHER
                                 COMMON STOCK        PAID-IN         ESOP           MRP       COMPREHENSIVE     RETAINED
                              SHARES     AMOUNT      CAPITAL        SHARES         SHARES        INCOME         EARNINGS

<S>                          <C>           <C>       <C>           <C>           <C>            <C>            <C>
BALANCE, JULY 1, 1997        2,645,000     26,450    25,775,523    (1,990,320)       --            (33,353)     14,152,552

Net income                                                                                                         385,113
Common stock committed
  to be released for ESOP                                85,707       297,520
Liability to purchase MRP
  shares                                                                         $(846,400)
MRP shares earned                                                                  267,872
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                                                            87,260
Dividends paid
                                                                                                                  (529,000)
                             ---------  --------   ------------  -----------    ----------    ------------   -------------
BALANCE, JUNE 30, 1998       2,645,000     26,450    25,861,230   (1,692,800)     (578,528)         53,907      14,008,665

Net income                                                                                                         415,641
Common stock committed
  to be released for ESOP                                 8,570      211,600
MRP shares earned                                       124,072                    188,472
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                                                        (2,674,580)
Treasury stock purchased
Dividends paid                                                                                                    (592,612)
                             ---------  --------   ------------  -----------    ----------    ------------   -------------
BALANCE, JUNE 30, 1999       2,645,000  $ 26,450   $ 25,993,872  $(1,481,200)   $ (390,056)   $ (2,620,673)  $  13,831,694

Net income                                                                                                         785,902
Common stock committed
  to be released for ESOP                               (48,022)    211,600
MRP shares earned                                                                169,952
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                                                        (1,780,995)
Treasury stock purchased
Dividends paid                                                                                                    (506,929)
                             ---------  --------   -----------   -----------    ---------     ------------   -------------
BALANCE, JUNE 30, 2000       2,645,000  $ 26,450   $25,945,850   $(1,269,600)   $(220,104)    $ (4,401,668)  $  14,110,667
                             =========  ========   ===========   ===========    =========     ============   =============

<CAPTION>
--------------------------------------------------------------------------------
                                 TREASURY      TREASURY       TOTAL
                                  STOCK         STOCK      STOCKHOLDERS'
                                  SHARES        AMOUNT        EQUITY

<S>                              <C>           <C>          <C>
BALANCE, JULY 1, 1997               --            --        37,930,852

Net income                                                     385,113
Common stock committed
  to be released for ESOP                                      383,227
Liability to purchase MRP
  shares                                                      (846,400)
MRP shares earned                                              267,872
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                        87,260
Dividends paid                                                (529,000)
                               -------   -----------       ------------

BALANCE, JUNE 30, 1998              --            --        37,678,924

Net income                                                     415,641
Common stock committed
  to be released for ESOP                                      220,170
MRP shares earned                                              312,544
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                    (2,674,580)
Treasury stock purchased       315,456   $(3,242,527)       (3,242,527)
Dividends paid                                                (592,612)
                               -------   -----------       -----------
BALANCE, JUNE 30, 1999         315,456   $(3,242,527)      $32,117,560

Net income                                                     785,902
Common stock committed
  to be released for ESOP                                      163,578
MRP shares earned                                              169,952
Net change in unrealized
  gain (loss) on securities
  available for sale, net
  of tax                                                    (1,780,995)
Treasury stock purchased       282,964    (2,708,518)       (2,708,518)
Dividends paid                                                (506,929)
                               -------   -----------       -----------
BALANCE, JUNE 30, 2000         598,420   $(5,951,045)      $28,240,550
                               =======   ===========       ===========
</TABLE>

See notes to consolidated financial statements.


                                       22
<PAGE>

HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                   2000               1999                 1998
<S>                                                            <C>                 <C>                  <C>
OPERATING ACTIVITIES:
  Net income                                                   $   785,902         $   415,641          $   385,113
  Adjustments to reconcile net income to net
    cash provided (used) by operating activities:
    Depreciation                                                   649,779             544,142              407,850
    Amortization (accretion) of:
      Deferred loan origination fees                              (116,260)             (2,729)             (26,757)
      Goodwill                                                      75,000              75,000              123,133
      Premiums and discounts on loans, net                          (4,619)               (510)              (5,454)
      Premiums and discounts on investment securities, net         119,181             323,110              213,806
    Provision for loan loss                                             --                  --               24,000
    Deferred income taxes                                         (477,356)           (311,921)              27,027
    Net gain on sale of investment securities
      available for sale                                                --            (261,996)             (22,257)
    Loss on impaired investment security                                --               9,000              150,356
    Loss on disposal of assets, net                                     --               5,464               20,395
    Originations of loans held for sale                         (9,239,668)        (14,751,445)                  --
    Proceeds from sales of loans                                10,160,826          13,140,464            4,952,961
    Stock compensation expense                                     333,530             408,642              695,271
    Change in accrued interest receivable                         (135,064)            121,503             (533,374)
    Change in accrued interest payable                             102,218             171,310              233,410
    Change in other assets                                         826,402            (321,083)             245,682
    Change in other liabilities                                    (23,113)             72,750              503,764
                                                              -------------      -------------         ------------

        Net cash provided (used) by operating activities         3,056,758            (362,658)           7,394,926

INVESTING ACTIVITIES:
  Purchases of investment securities available for sale         (3,302,892)        (94,991,103)         (88,941,413)
  Purchases of other interest bearing deposits                          --                  --           (2,782,000)
  Purchases of loans                                               (82,547)                 --           (8,257,199)
  Purchases of Federal Home Loan Bank stock                       (844,400)         (1,930,200)          (2,202,400)
  Proceeds from sales of investment securities - available
   for sale                                                             --          48,024,577           20,794,327
  Loan originations, net of repayments                         (21,181,354)         (8,968,498)          (2,667,081)
  Principal payments on investment securities                   14,768,810          22,279,177           13,087,527
  Proceeds from maturities of other interest bearing deposits      619,000           2,064,000                   --
  Proceeds from sale of subsidiary                                      --                  --            3,100,000
  Investment in subsidiary sold                                         --                  --           (3,100,000)
  Proceeds from sales of real estate                               103,870              (2,288)              71,132
  Proceeds from sales of premises and equipment                         --              14,426              605,641
  Purchases of premises and equipment                             (701,559)         (1,462,969)          (1,680,464)
                                                              -------------      -------------         ------------

        Net cash used by investing activities                  (10,621,072)        (34,972,878)         (71,971,930)


                                                                                                        (Continued)
</TABLE>

                                       23
<PAGE>

HCB BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
<TABLE>
<CAPTION>

                                                                   2000               1999               1998

<S>                                                        <C>                   <C>                 <C>
FINANCING ACTIVITIES:
  Net increase (decrease) in deposits                      $    (1,423,527)      $   4,365,268       $      141,326
  Deposits assumed by others, net                                       --                  --           (8,541,747)
  Advances from Federal Home Loan Bank                         281,234,000         124,128,000           76,607,000
  Repayment of Federal Home Loan Bank advances                (270,148,390)        (87,725,649)         (18,485,932)
  Net increase (decrease) in advance payments by
    borrowers for taxes and insurance                               11,112             (80,800)                 102
  Purchase of treasury stock                                    (2,708,518)         (3,242,527)                  --
  Purchase of shares for the management retention plan                  --            (722,328)                  --
  Repayment of note payable                                        (80,000)            (80,000)             (80,000)
  Dividends paid                                                  (506,929)           (592,612)            (529,000)
  Other                                                                 --                  --              (44,172)


            Net cash provided by financing activities            6,377,748          36,057,922           49,067,577
                                                               -----------         -----------         ------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                              (1,186,566)            713,816          (15,509,427)

CASH AND CASH EQUIVALENTS:
  Beginning of year                                              4,536,214           3,822,398           19,331,825
                                                               -----------         -----------         ------------

  End of year                                                $   3,349,648       $   4,536,214       $    3,822,398
                                                               ===========         ===========         ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
  Cash paid for:
    Interest                                                 $  12,997,438       $  11,922,293       $    8,708,739
                                                               ===========         ===========         ============

    Income taxes                                             $          --       $      95,000       $      220,000
                                                               ===========         ===========         ============

                                                                                                        (Concluded)
</TABLE>

See notes to consolidated financial statements.

                                       24
<PAGE>
HCB BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000, 1999 AND 1998
--------------------------------------------------------------------------------


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         NATURE OF OPERATIONS AND PRINCIPLES OF  CONSOLIDATION - HCB Bancshares,
Inc. ("Bancshares") was incorporated under the laws of the state of Oklahoma for
the purpose of becoming the bank holding company of Heartland Community Bank and
its  subsidiary  (the "Bank") in connection  with the Bank's  conversion  from a
federally  chartered mutual savings bank to a federally  chartered stock savings
bank, pursuant to its Plan of Conversion ("Conversion").  On April 30, 1997, the
Bank  completed  the  Conversion  and  became  a  wholly  owned   subsidiary  of
Bancshares.  Bancshares'  business  is  primarily  that of  owning  the Bank and
participating in the Bank's activities.

         The Bank provides a broad line of financial products to individuals and
small to medium-sized businesses through full service banking offices located in
Camden,  Fordyce,  Sheridan,  and  Monticello,  Arkansas,  as  well  as  a  loan
production  office in Bryant,  Arkansas.  On February 16, 2000 the bank received
approval from OTS to convert its loan production office in Bryant, Arkansas to a
full service branch.  Construction is in progress with an expected  opening date
of October 30, 2000.

         The accompanying consolidated financial statements include the accounts
of Bancshares  and the Bank and are  collectively  referred to as the "Company".
All significant  intercompany  balances and transactions have been eliminated in
consolidation.

         USE  OF  ESTIMATES  -  The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated  financial  statements and the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

         CASH  AND  CASH  EQUIVALENTS  - For  purposes  of  presentation  in the
consolidated statements of cash flows, "cash and cash equivalents" includes cash
on  hand  and  amounts  due  from   depository   institutions,   which  includes
interest-bearing amounts available upon demand.

         OTHER INTEREST  BEARING  DEPOSITS WITH BANKS - Other  interest  bearing
deposits with banks  represents  certificates  of deposit in other banks held by
the Company not meeting the definition of a cash equivalent.

         INVESTMENT  SECURITIES - The Company classifies  investment  securities
into one of two categories:  held to maturity or available for sale. The Company
does not engage in trading activities.  Debt securities that the Company has the
positive  intent  and  ability to hold to  maturity  are  classified  as held to
maturity and recorded at cost, adjusted for the amortization of premiums and the
accretion of discounts.

         Investment  securities  that the Company intends to hold for indefinite
periods of time are  classified  as available  for sale and are recorded at fair
value.  Unrealized  holding  gains and losses are  excluded  from  earnings  and
reported  net of tax as a  separate  component  of  stockholders'  equity  until
realized.  Investment securities in the available for sale portfolio may be used
as part of the  Company's  asset and liability  management  practices and may be
sold in  response  to changes in interest  rate risk,  prepayment  risk or other
economic factors.

         Premiums are amortized into interest  income using the interest  method
to the earlier of maturity or call date.  Discounts  are accreted  into interest
income  using the  interest  method over the period to  maturity.  The  specific
identification  method of  accounting  is used to compute gains or losses on the
sales of investment securities.


                                       25
<PAGE>
         If the fair value of an investment  security declines for reasons other
than  temporary  market  conditions,  the  carrying  value of such a security is
written down to fair value by a charge to operations.

         LOANS  RECEIVABLE - Loans receivable that management has the intent and
ability to hold for the  foreseeable  future or until  maturity  or pay-off  are
stated at unpaid principal balances adjusted for any charge-offs,  the allowance
for loan  losses,  deferred  loan fees or costs,  and  unamortized  premiums  or
discounts.  Deferred  loan fees or costs and premiums and discounts on loans are
amortized or accreted to income using the level-yield  method over the remaining
period to contractual maturity.

         The accrual of interest on  impaired  loans is  generally  discontinued
when, in  management's  opinion,  the borrower may be unable to meet payments as
they become due or when the loan becomes ninety days past due,  whichever occurs
first.  When interest  accrual is  discontinued,  all unpaid accrued interest is
reversed.  Interest  income is  subsequently  recognized only to the extent cash
payments  in excess  of  principal  due are  received,  until  such time that in
management's  opinion, the borrower will be able to meet payments as they become
due.

         ALLOWANCE  FOR  LOAN  LOSSES  - The  allowance  for  loan  losses  is a
valuation  allowance to provide for incurred  but not yet realized  losses.  The
Bank  reviews its loans for  impairment  on a  quarterly  basis.  Impairment  is
determined  by assessing the  probability  that the borrower will not be able to
fulfill the  contractual  terms of the agreement.  If a loan is determined to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's  effective  interest rate or
by use of the observable market price of the loan or fair value of collateral if
the loan is collateral  dependent.  Throughout the year management estimates the
level of probable  losses to determine  whether the allowance for loan losses is
appropriate considering the estimated losses existing in the portfolio. Based on
these  estimates,  an amount is charged  to the  provision  for loan  losses and
credited to the  allowance for loan losses in order to adjust the allowance to a
level  determined  by  management  to be  appropriate  relative  to losses.  The
allowance  for loan losses is  increased by charges to income  (provisions)  and
decreased by charge-offs, net of recoveries.

          Management's   periodic  evaluation  of  the  appropriateness  of  the
allowance  is based on the  Company's  past  loan  loss  experience,  known  and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability to repay,  the estimated value of any underlying  collateral
and current economic conditions.

         Homogeneous  loans  are  those  that  are  considered  to  have  common
characteristics  that provide for evaluation on an aggregate or pool basis.  The
Company  considers the  characteristics  of (1) one-to-four  family  residential
first  mortgage  loans;   (2)  automobile  loans  and;  (3)  consumer  and  home
improvement  loans  to  permit  consideration  of  the  appropriateness  of  the
allowance  for  losses  of each  group  of loans on a pool  basis.  The  primary
methodology  used to determine the  appropriateness  of the allowance for losses
includes  segregating  certain specific,  poorly performing loans based on their
performance characteristics from the pools of loans as to type and then applying
a loss factor to the remaining pool balance based on several  factors  including
classification of the loans as to grade,  past loss experience,  inherent risks,
economic  conditions in the primary market areas and other factors which usually
are beyond the  control of the  Company.  Those  segregated  specific  loans are
evaluated  using the present value of future cash flows,  usually  determined by
estimating  the  fair  value of the  loan's  collateral  reduced  by any cost of
selling and  discounted at the loan's  effective  interest rate if the estimated
time to receipt of monies is more than three months.

         Non-homogeneous  loans  are  those  loans  that  can be  included  in a
particular loan type, such as commercial  loans and  multi-family and commercial
first mortgage loans,  but which differ in other  characteristics  to the extent
that valuation on a pool basis is not valid. After segregating specific,  poorly
performing  loans  and  applying  the  methodology  as  noted  in the  preceding
paragraph for such specific  loans,  the remaining  loans are evaluated based on
payment  experience,  known difficulties in the borrowers business or geographic
area,  loss  experience,  inherent  risks and other factors  usually  beyond the
control of the  Company.  These  loans are then  graded  and a factor,  based on
experience, is applied to estimate the probable loss.

         Estimates  of the  probability  of loan  losses  involve an exercise of
judgment.  While it is  possible  that in the near term the  Company may sustain
losses which are substantial in relation to the allowance for loan losses, it is
the judgment of management  that the allowance for loan losses  reflected in the
consolidated  statements of financial  condition is appropriate  considering the
estimated probable losses in the portfolio.

                                       26
<PAGE>

         Real Estate Held for Sale - Real estate acquired in settlement of loans
is initially  recorded at estimated fair value less estimated  costs to sell and
is  subsequently  carried  at the lower of  carrying  amount or fair  value less
estimated disposal costs.  Management  periodically performs valuations,  and an
allowance for losses is established by a charge to operations to the extent that
the  carrying  value of a property  exceeds  its  estimated  fair  value.  Costs
relating to the  development  and  improvement of the property are  capitalized,
whereas  those  relating  to holding  the  property  are  expensed.  Real estate
acquired  for sale is  carried  of the lower of cost or fair value less costs to
sell.

         PREMISES AND  EQUIPMENT - Office  premises and  equipment are stated at
cost less  accumulated  depreciation  and  amortization.  The  Company  computes
depreciation of premises and equipment using the  straight-line  method over the
estimated  useful lives of the individual  assets which range from 5 to 50 years
for  buildings  and  improvements  and  from 3 to 10  years  for  furniture  and
equipment.

         GOODWILL AND LONG LIVED ASSETS - Goodwill is being  amortized  over six
years using the straight-line  method.  Goodwill and other long lived assets are
reviewed for recoverability whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.

         LOAN  ORIGINATION  FEES - Loan origination fees and certain direct loan
origination  costs  are  deferred  and the net fee or cost is  recognized  as an
adjustment to interest income using the level-yield  method over the contractual
life  of the  loans.  When a loan  is  fully  repaid  or  sold,  the  amount  of
unamortized fee or cost is recorded in income.

         INCOME  TAXES - The Company  recognizes  deferred tax  liabilities  and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and  liabilities.  Deferred tax
assets and  liabilities  are  reflected  at currently  enacted  income tax rates
applicable  to the period in which the  deferred tax assets or  liabilities  are
expected to be realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and  liabilities  are  adjusted  through the  provision  for
income taxes. The Company considers the need for a valuation allowance if, based
on available evidence, deferred tax assets are not expected to be realized.

         INTEREST RATE RISK - The Bank's asset base is exposed to risk including
the risk  resulting  from changes in interest rates and changes in the timing of
cash  flows.  The Bank  monitors  the  effect of such risks by  considering  the
mismatch of the maturities of its assets and liabilities in the current interest
rate  environment  and the  sensitivity of assets and  liabilities to changes in
interest rates.  The Bank's  management has considered the effect of significant
increases  and decreases in interest  rates and believes  such changes,  if they
occurred,  would be  manageable  and would not affect the ability of the Bank to
hold its assets as planned.  However,  the Bank is exposed to significant market
risk in the event of significant and prolonged interest rate changes.

         EMPLOYEE STOCK  OWNERSHIP PLAN - Compensation  expense for the Employee
Stock  Ownership Plan ("ESOP") is determined  based on the average fair value of
shares  committed  to be  released  during the period and is  recognized  as the
shares are  committed  to be  released.  For the purposes of earnings per share,
ESOP shares are included in  weighted-average  common shares  outstanding as the
shares are committed to be released.

         MANAGEMENT  RECOGNITION PLAN - Compensation for Management  Recognition
Plan  shares  granted  is based on the fair  value of the  shares at the date of
grant and is recognized ratably over the vesting period.

         EARNINGS  PER SHARE - Earnings  per share  ("EPS") of common  stock has
been  computed on the basis of the  weighted-average  number of shares of common
stock outstanding, assuming the Company was a public company since July 1, 1996.
Basic and  diluted  earnings  per share  were both  calculated  with  1,988,984,
2,344,083,  2,462,084, and 2,434,971  weighted-average common shares outstanding
for the  years  ended  June  30,  2000,  1999,  1998,  and  1997,  respectively.
Weighted-average common shares outstanding was the same for basic and diluted in
those years.  Potential  dilutive  common  shares  include the Stock Option Plan
shares and the Management Recognition Plan shares, all of which were granted May
1, 1998. These potential common shares had no dilutive effect for the year ended
June 30, 2000.

         RECLASSIFICATIONS  - Certain amounts in the 1999 and 1998  consolidated
financial  statements have been  reclassified to conform to the  classifications
adopted for reporting in 2000.


                                       27
<PAGE>


2.    INVESTMENT SECURITIES

         Investment securities consisted of the following at June 30:
<TABLE>
<CAPTION>

                                                                                2000
                                                 ------------------------------------------------------------------
                                                                      GROSS            GROSS
                                                 AMORTIZED         UNREALIZED        UNREALIZED           FAIR
      AVAILABLE FOR SALE                           COST               GAINS            LOSSES            VALUE
      <S>                                    <C>                   <C>            <C>             <C>
      U.S. Government and agencies           $      6,107,679                     $     226,776   $      5,880,903
      Municipal securities                         30,459,285          1,977          2,260,064         28,201,198
      Equity securities                                63,100                             9,475             53,625
      Mortgage-backed securities                   90,635,969         17,825          4,051,513         86,602,281
      Collateralized mortgage obligations          12,654,621          2,558            852,121         11,805,058
                                                   ----------        -------         ----------         ----------

            Total                              $  139,920,654      $  22,360       $  7,399,949     $  132,543,065
                                                  ===========         ======          =========        ===========
<CAPTION>

                                                                                1999
                                                 ------------------------------------------------------------------
                                                                      GROSS             GROSS
                                                 AMORTIZED         UNREALIZED        UNREALIZED           FAIR
      AVAILABLE FOR SALE                           COST               GAINS           LOSSES             VALUE
      <S>                                    <C>                   <C>            <C>             <C>
      U.S. Government and agencies           $      6,481,345                     $     113,220   $      6,368,125
      Municipal securities                         27,617,353     $    7,522            920,459         26,704,416
      Equity securities                                63,100                             2,725             60,375
      Mortgage-backed securities                  104,464,913         81,356          2,905,687        101,640,582
      Collateralized mortgage obligations          12,879,042          4,990            537,841         12,346,191
                                                   ----------          -----            -------         ----------

            Total                              $  151,505,753      $  93,868       $  4,479,932     $  147,119,689
                                                  ===========         ======          =========        =============
</TABLE>

         There were no  significant  gross  realized gains on sales of available
for  sale  securities  for  the  year  ended  June  30,  2000,  as  compared  to
approximately  $262,000 and $22,000 gross realized gains for the year ended June
30, 1999 and 1998, respectively.

     At  June  30,  2000,   municipal   securities  with  a  carrying  value  of
approximately  $1.3 million were pledged to collateralize  public  deposits.  At
June 30,  2000 and 1999,  mortgage-backed  securities  with a carrying  value of
approximately  $62.3 million and $ 66.6 million,  respectively,  were pledged as
collateral for Federal Home Loan Bank advances.

         The scheduled  maturities of available for sale debt securities at June
30, 2000 by contractual maturity are shown below. Expected maturities may differ
from  contractual  maturities  because  borrowers  may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                                      Amortized           Fair
                                                                         Cost             Value

         <S>                                                        <C>               <C>
         Due in one year or less                                   $          --     $          --
         Due from one year to five years                               4,117,672         3,997,504
         Due from five years to ten years                              3,138,394         2,968,488
         Due after ten years                                          29,310,898        27,116,109
                                                                    ------------      ------------

                                                                      36,566,964        34,082,101

         Equity securities                                                63,100            53,625
         Mortgage-backed securities                                   90,635,969        86,602,281
         Collateralized mortgage obligations                          12,654,621        11,805,058
                                                                    ------------      ------------

               Total                                               $ 139,920,654     $ 132,543,065
                                                                    ============      ============
</TABLE>

                                       28
<PAGE>

3.    LOANS RECEIVABLE

         Loans receivable consisted of the following at June 30:
<TABLE>
<CAPTION>

                                                                               2000                1999
      <S>                                                              <C>                    <C>
      First mortgage loans:
        One- to four- family residences                                $   53,789,291         $   50,417,714
        Multi-family and commercial                                        56,765,619             42,922,554
        Real estate construction loans                                     14,264,996             14,963,457
          Less undisbursed loan funds                                      (7,386,539)            (6,150,810)
                                                                        -------------          --------------
              Total first mortgage loans                                  117,433,367            102,152,915
                                                                        -------------          --------------

      Consumer and other loans:
        Commercial loans                                                    8,769,131              5,367,611
        Automobile                                                          6,460,343              4,269,898
        Consumer and home improvement loans                                 2,430,684              2,643,180
        Loans collateralized by deposits                                    2,320,915              2,021,141
          Less undisbursed loan funds                                        (714,443)                    --
                                                                        -------------          --------------

              Total consumer and other loans                               19,266,630             14,301,830
                                                                        -------------          --------------

      Allowance for loan losses                                            (1,231,709)            (1,329,201)
      Net deferred loan costs and discounts                                   158,217                 37,339
                                                                        -------------          --------------

                Loans receivable, net                                  $  135,626,505         $  115,162,883
                                                                        =============          =============
</TABLE>


         The  Company  originates  and  maintains  loans  receivable  which  are
substantially   concentrated  in  its  lending  territory   (primarily  Southern
Arkansas)  but also  originates  commercial  real estate loans in other areas of
Arkansas and in contiguous  states. The Company's policy calls for collateral or
other forms of repayment  assurance to be received from the borrower at the time
of loan  origination.  Such  collateral or other form of repayment  assurance is
subject to changes in economic  value due to various  factors beyond the control
of the Company.

         The  Company  has made  loans to its  directors,  officers,  and  their
related business interests.  The aggregate dollar amount of loans outstanding to
directors,  officers and their related business interests totaled  approximately
$808,000 and $631,000 at June 30, 2000 and 1999, respectively.

         Loans  identified  by  management as impaired at June 30, 2000 and 1999
were not  significant.  The Company is not committed to lend additional funds to
debtors whose loans have been modified.

         Certain loans are originated  for sale.  These loans are typically held
for sale  only a short  time,  and do not  represent  a  material  amount in the
aggregate prior to their sale.  Normally the short time between  origination and
sale does not  provide  for  significant  differences  between  cost and  market
values.

4.    ACCRUED INTEREST RECEIVABLE

         Accrued interest receivable consisted of the following at June 30:
<TABLE>
<CAPTION>
                                                      2000              1999

<S>                                               <C>                 <C>
Investment securities                             $1,109,074          $1,059,051
Loans                                                743,813             658,772
                                                  ----------          ----------

    Total                                         $1,852,887          $1,717,823
                                                  ==========          ==========
</TABLE>



                                       29
<PAGE>

5.    ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES

         A summary of the  activity in the  allowances  for loan and real estate
losses is as follows for the years ended June 30:
<TABLE>
<CAPTION>

                                               2000                      1999                      1998
                                                     REAL                      REAL                       REAL
                                         LOANS      ESTATE        LOANS       ESTATE          LOANS      ESTATE
                                         -----------------        ------------------          -----------------
      <S>                              <C>          <C>         <C>            <C>         <C>          <C>
      Balance, beginning of year       $ 1,329,201  $  --       $ 1,468,546    $  --       $ 1,492,473  $ 28,825
      Provision                                 --     --                --       --            24,000
      Charge-offs, net of recoveries       (97,492)    --          (139,345)      --           (47,927)  (28,825)
                                       -----------  -----       -----------    -----       -----------  --------

      Balance, end of year             $ 1,231,709  $  --       $ 1,329,201    $  --       $ 1,468,546  $     --
                                       ===========  =====       ===========    =====       ===========  ========
</TABLE>

6.    FEDERAL HOME LOAN BANK STOCK

         The Bank is a member of the Federal Home Loan Bank System.  As a member
of this system, it is required to maintain an investment in capital stock of the
Federal  Home Loan Bank  ("FHLB") in an amount equal to the greater of 1% of its
outstanding  home loans or .3% of its total  assets.  No ready market exists for
such stock and it has no quoted  market  value but may be redeemed  at par.  The
carrying value of the stock is its cost.

7.    PREMISES AND EQUIPMENT

         Premises and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>

                                                     2000               1999

<S>                                              <C>                <C>
Land and buildings                               $ 5,920,828        $ 5,433,038
Furniture and equipment                            2,896,453          2,682,725
                                                 -----------        -----------

      Total                                        8,817,281          8,115,763

Accumulated depreciation                          (2,264,797)        (1,615,059)
                                                 -----------        -----------

     Premises and equipment, net                 $ 6,552,484        $ 6,500,704
                                                 ===========        ===========
</TABLE>

         At June 30, 2000,  the Bank had one  full-service  branch  office under
construction  located in Bryant,  Arkansas.  This office  will  replace the loan
production  office  currently  being leased Bryant.  The total cost is currently
estimated to be $1,676,000 of which  $538,687 had been  disbursed as of June 30,
2000.  The balance of the cost will be disbursed as work is  completed.  The new
office is expected to be open on October 30, 2000.

8.    DEPOSITS

         Deposits are summarized as follows at June 30:
<TABLE>
<CAPTION>

                                                                       2000                       1999
        <S>                                                        <C>                        <C>
      Demand and NOW accounts, including noninterest-bearing
        deposits of $5,650,755 and $5,348,227 in 2000 and
        1999, respectively                                         $  23,553,466              $  12,411,932
      Money market                                                     9,360,191                 17,619,341
      Statement savings                                                7,530,432                  7,971,447
      Certificates of deposit                                        104,428,982                108,293,878
                                                                     -----------                -----------

            Total                                                  $ 144,873,071              $ 146,296,598
                                                                     ===========               ============
</TABLE>

         The aggregate amount of short-term jumbo certificates of deposit with a
minimum  denomination  of $100,000  was  approximately  $11.6  million and $11.4
million at June 30, 2000 and 1999, respectively.


                                       30
<PAGE>


         At June 30, 2000,  scheduled  maturities of certificates of deposit are
as follows:

        Years ending June 30:
             2001                                   $    77,926,311
             2002                                        23,743,127
             2003                                         2,750,539
             2004                                             9,005
                                                        -----------

                         Total                       $  104,428,982
                                                        ===========

         Eligible deposits of the Bank are insured up to $100,000 by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC").

9.    FEDERAL HOME LOAN BANK ADVANCES AND NOTE PAYABLE

         The Bank pledges as collateral for FHLB advances its FHLB stock and has
entered into blanket collateral agreements with the FHLB whereby the Bank agrees
to maintain, free of other encumbrances, qualifying single family first mortgage
loans with unpaid principal  balances,  when discounted to 75% of such balances,
of at  least  100% of  total  outstanding  advances.  Additionally  the Bank has
pledged mortgage-backed  securities with a carrying value of approximately $62.3
million at June 30, 2000,  as additional  collateral.  Advances at June 30, 2000
and 1999, have maturity dates as follows:
<TABLE>
<CAPTION>
                                                      2000                                           1999
                                         WEIGHTED                                      WEIGHTED
                                          AVERAGE                                      AVERAGE
                                            RATE           AMOUNT                        RATE              AMOUNT
      <S>                                <C>            <C>                             <C>           <C>
      Years ending June 30:
         2000                               --                      --                  5.09 %        $   24,425,000
         2001                              6.46 %        $  35,045,000                  6.00               7,625,000
         2002                              5.50              7,550,000                  5.50               7,550,000
         2003                              5.70             12,047,991                  5.66              11,555,000
         2004                              5.66              4,875,000                  5.66               4,875,000
         2005                              5.73              7,000,000                  5.73               7,000,000
         Thereafter                        6.06             49,091,038                  5.87              41,493,419
                                           ----             ----------                  ----              ----------

            Total                          6.07 %       $  115,609,029                  5.63 %         $ 104,523,419
                                           ====            ===========                  ====             ===========
</TABLE>

         The note  payable  of  $160,000  at June  30,  2000,  is due in  annual
installments  of $80,000 plus interest  through  September  2001. The note bears
interest at 7.50% and is  collateralized by real estate held for sale and office
premises with a combined carrying value at June 30, 2000, of approximately  $1.6
million.

10.   INCOME TAXES

         Income tax provisions (benefits) are summarized as follows:
<TABLE>
<CAPTION>

                                                                        Years Ended June 30,
                                                            -------------------------------------------
                                                            2000             1999             1998
      <S>                                                <C>               <C>           <C>
      Income tax provision (benefit):
        Current                                          $  136,209        $  248,263    $    (47,732)
        Deferred                                           (477,356)         (311,921)         27,027
                                                           ---------         ---------         ------
             Total                                       $ (341,147)      $   (63,658)   $    (20,705)
                                                            ========          ========        ========
</TABLE>


                                       31
<PAGE>




         The reasons for the  differences  between the statutory  federal income
tax rates and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>

                                                       YEARS ENDED JUNE 30,
                            -----------------------------------------------------------------------------------
                                        2000                      1999                           1998

<S>                             <C>            <C>          <C>          <C>            <C>              <C>
Taxes at statutory rate         $  151,217     34.0 %       $  119,674   34.0 %         $   123,899      34.0 %
Increase (decrease)
  resulting from:
    Tax exempt income             (503,043)  (113.11)         (304,193) (86.42)            (135,853)    (37.30)
    Disallowed interest
      expense                       67,735     15.23            44,561   12.66
    Change in estimate                   0      0.00            64,915   18.44
    Goodwill                             0      0.00                 0    0.00               41,865      11.50
    Compensation                   (77,301)   (17.38)          (14,389)  (4.09)             (68,347)    (18.80)
    Other, net                      20,245      4.56            25,774    7.32               17,731       4.90
                                  --------    ------          -------- -------             --------     ------

                Total          $  (341,147)   (76.70) %     $  (63,658) (18.09) %      $    (20,705)     (5.70) %
                                  =========   =======          ======== =======             ========     ======
</TABLE>

         During the year ended  December 31, 1996, new  legislation  was enacted
which  provides  for the  recapture  into  taxable  income  of  certain  amounts
previously  deducted  as  additions  to the bad debt  reserves  for  income  tax
purposes.  The Bank changed its method of determining  bad debt reserves for tax
purposes  following  the year ended June 30, 1997.  The amounts to be recaptured
for  income  tax  reporting   purposes  are   considered  by  the  Bank  in  the
determination of the net deferred tax liability.

     The Company's  deferred tax asset account was comprised of the following at
June 30:

<TABLE>
<CAPTION>

                                                                              2000                  1999
      <S>                                                                 <C>                  <C>
      Deferred tax assets:
        Allowance for loan losses                                         $   275,866          $   225,376
        Unrealized loss on investments                                      2,975,921            1,764,294
        Deferred compensation                                                 306,236              269,052
        Net operating losses                                                  661,092              231,320
        AMT credit carryover                                                  278,496              142,658
        Investment premiums and discount                                       18,360                   --
        Other                                                                  46,048               28,213
                                                                          -----------          -----------
                  Total deferred tax assets                                 4,562,019            2,660,913
      Deferred tax liabilities:
        Premises and equipment                                                222,683              120,617
        Investment premiums and discount                                           --                8,162
        Loan fees                                                                  --               23,111
        FHLB dividends                                                        290,462              140,522
        Discount on loans purchased                                                --                8,610
                                                                           ----------          -----------
                 Total deferred tax liabilities                               513,145              301,022
                                                                           ----------          -----------

                 Net deferred tax asset                                  $  4,048,874         $  2,359,891
                                                                            =========            =========

</TABLE>

         A  deferred  tax  liability  has not been  recognized  for the bad debt
reserves of the Bank  created in the tax years which began prior to December 31,
1987 (the base year).  At June 30, 2000,  the amount of these  reserves  totaled
approximately   $3,459,119  with  an  unrecognized  deferred  tax  liability  of
$1,177,372.  Such unrecognized deferred tax liability could be recognized in the
future,  in whole or in part,  if (i) there is a change in federal tax law, (ii)
the Bank fails to meet certain  definitional  tests and other  conditions in the
federal tax law, (iii) certain  distributions are made with respect to the stock
of the Bank,  or (iv) the bad debt  reserves are used for any purpose other than
absorbing bad debt losses.

         The Company has a net operating loss carryforward of $1,944,389,  which
will begin expiring in 2019. The Company's AMT credit  carryforward  of $278,496
does not have an expiration date.

                                       32
<PAGE>

11.   BENEFIT PLANS

         Employee Stock Ownership Plan - The Company has established an employee
stock ownership plan ("ESOP") to benefit  substantially all employees.  The ESOP
originally  purchased  211,600  shares of common  stock in the  Conversion  with
proceeds received from a loan from Bancshares.

         Bancshares'   note   receivable,   presented  in  the   statements   of
stockholders' equity as unearned ESOP shares, is to be repaid in installments of
$211,600 on June 30th each year through  2006.  Interest is based upon the prime
rate, which is to be adjusted and paid annually. The note may be prepaid without
penalty.  The  ESOP is  funded  by  contributions  made by the  Bank in  amounts
sufficient to retire the debt.  Compensation expense of $163,578,  $220,171, and
$427,399 was  recognized  during the years ended June 30, 2000,  1999, and 1998,
respectively.

         Shares  no longer  required  to be held to  collateralize  the debt and
earnings from the common stock held by the ESOP are allocated among participants
on the basis of  compensation  in the year of allocation.  Benefits  become 100%
vested after three years of credited service.  Forfeitures of nonvested benefits
will  be  reallocated  among  remaining  participating  employees  in  the  same
proportion  as  contributions.  At June 30,  2000 and 1999,  21,160  and  21,160
shares,  respectively,  were committed to be released by the ESOP to participant
accounts.  At June 30, 2000,  there were 84,640 shares  allocated to participant
accounts  and  126,960  unallocated  shares.  The fair value of the  unallocated
shares amounted to approximately $777,630 at June 30, 2000.

         Participants   with  vested  account   balances   leaving   employment,
generally, may elect to have their allocated shares distributed.  In the case of
a  distribution  of shares,  which at the time of  distribution  are not readily
tradable on an established securities market, the Company is required to issue a
put option to the  participant.  Any excess of the total purchase price at which
the  participant  may put the shares to the  Company  over the fair value of the
shares at the date of the issuance of the option is recognized as expense to the
Company with the fair value of the shares recorded as treasury stock. During the
year ended June 30, 2000,  put options were issued to two  employees but without
any material  expense to the Company.  During the year ended June 30, 1999,  put
options  were  issued to two  employees  resulting  in an expense to the Company
totaling approximately $20,000.

         STOCK  OPTION  PLAN - The Stock  Option Plan  ("SOP"),  approved by the
Company's  stockholders  during  the year ended June 30,  1998,  provides  for a
committee  of  the   Company's   Board  of  Directors  to  award   incentive  or
non-incentive stock options, representing up to 317,400 shares of Company stock.
Options granted to executive officers and directors vest 25% immediately and 25%
on each of the three subsequent  anniversary dates on the grant. Options granted
to employees vest 20% immediately upon grant,  with the balance vesting in equal
amounts on the four subsequent  anniversary dates of the grant.  Options granted
vest immediately in the event of retirement,  disability,  or death. Outstanding
stock options can be exercised over a ten-year period from the date of grant.

         Under the SOP, options have been granted to directors and key employees
to purchase common stock of the Company.  The exercise price in each case equals
the fair market value of the  Company's  stock at the date of grant.  On October
29, 1998,  the options  committee  of the Board of Directors  lowered the option
grant price on the existing  304,140  options  granted to current  employees and
directors at that date to $9.125 per share,  which was market value on that day.
No new options were granted in the current year.



                                       33
<PAGE>

         A summary of the status of the  Company's  stock option plan as of June
30,  2000,  and  changes  during the years  ending  June 30,  2000 and 1999,  is
presented below:
<TABLE>
<CAPTION>

                                                                                             WEIGHTED
                                                                                              AVERAGE
                                                                                              EXERCISE
      OPTIONS                                                                 SHARES           PRICE

      <S>                                                                     <C>           <C>
      Outstanding at July 1, 1998                                             304,300       $  16.00
      Granted                                                                  20,100           9.35
      Exercised                                                                    --            --
      Forfeited                                                                 9,104           9.22
                                                                              -------           ----

      Outstanding at June 30, 1999                                            315,296           9.14
      Granted                                                                      --            --
      Exercised                                                                    --            --
      Forfeited                                                                 2,316           9.22
                                                                              -------           ----
      Outstanding at June 30, 2000                                            312,980           9.14
                                                                              -------           ----

      Options exercisable at June 30, 2000 (vested)                           217,495        $  9.13
                                                                              =======           ====
</TABLE>


         Exercise  prices for options  outstanding at June 30, 2000,  range from
$9.125 to $9.375 per share. The weighted average  remaining  contractual life of
such shares was 7.9 years at June 30, 2000.

         The Company  applies the  provisions  of  Accounting  Principles  Board
Opinion No. 25 in  accounting  for its stock option plan,  as allowed under SFAS
No. 123, Accounting for Stock-Based Compensation.  Accordingly,  no compensation
cost has been recognized for options granted to employees. Had compensation cost
for these  plans been  determined  based on the fair value at the grant dates or
repricing date for awards under those plans  consistent with the methods of SFAS
No. 123,  the  Company's  pro forma net income and pro forma  earnings per share
would have been as follows:
<TABLE>
<CAPTION>
                                                                    2000
                                                   AS REPORTED                PRO FORMA

             <S>                                    <C>                       <C>
             Net income (in thousands)               $  786                    $  676
             Earnings per share:
                Basic                                $ 0.40                    $ 0.34
                Diluted                              $ 0.40                    $ 0.34
<CAPTION>

                                                                    1999
                                                   AS REPORTED                PRO FORMA

             <S>                                    <C>                       <C>
             Net income (in thousands)               $  416                    $  311
             Earnings per share:
                Basic                                $ 0.18                    $ 0.13
                Diluted                              $ 0.18                    $ 0.13
</TABLE>

                                       34
<PAGE>



         In  determining  the  above  pro forma  disclosure,  the fair  value of
options  granted  was  estimated  on  the  date  of  grant  using  the  binomial
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
                                                           1999             1998
                                                          GRANTS           GRANTS

<S>                                                         <C>              <C>
Volatility                                                  54%              15%
Life of options                                          7.5 years        7.5 years
Risk-free interest rate                                      5.3%             5.7%
Dividend rate                                                2.56%            2.63%
</TABLE>

         The weighted  average fair value of options  granted  during the fiscal
year ended June 30, 1999, was $2.25 per share.

         MANAGEMENT  RECOGNITION PLAN - The Management Recognition Plan ("MRP"),
approved  by the  Company's  stockholders  during the year ended June 30,  1998,
provides for a committee of the Company's Board of Directors to award restricted
stock to key officers as well as non-employee directors.  The MRP authorizes the
Company to grant up to 52,900 shares of Company stock, all of which were granted
during 1998.  Compensation  expense is recognized based on the fair market value
of the shares on the grant date of $16.00  over the  vesting  period.  Under the
original plan,  shares granted to directors  (37,024) vest 25% at the grant date
and 25% each May 1 afterward.  Shares granted to non-directors (15,876, of which
1,271  were  forfeited  as of June 30,  2000) vest 20% at the grant date and 20%
each May 1  afterward.  Shares  granted  will be  deemed  vested in the event of
retirement,  disability,  or  death.  At June 30,  2000,  all  shares  have been
acquired  that  are  necessary  to  meet  the  Plan's  award  requirements.  The
difference  between the price at the date of grant and the actual purchase price
was recorded as an adjustment to stockholders' equity.  Approximately  $170,000,
$188,000 and $268,000 in  compensation  expense was recognized  during the years
ended  June 30,  2000,  1999,  and  1998,  respectively.  On May 17,  2000,  all
directors  voluntarily  elected to extend their vesting period three  additional
years to May 1, 2004. In addition,  certain officers also voluntarily elected to
adopt the three-year extension of their vesting period.

         DEFINED  BENEFIT  PLAN  - The  Bank  had a  qualified,  noncontributory
defined  benefit  retirement  plan (the  "Plan")  covering  all of its  eligible
employees.  Employees  were eligible when they had attained at least  twenty-one
years of age and six months of  service  with the Bank.  The Board of  Directors
initially  adopted a resolution  on July 1, 1996,  to  terminate  the Plan as of
September  16, 1996,  and to freeze  benefit  accruals as of July 31, 1996.  The
Company  experienced  delays in  terminating  the Plan and on June 18,  1998,  a
resolution  was adopted to  terminate  the Plan as of  September  1, 1998,  with
benefit accruals remaining frozen as of July 31, 1996. Settlement of the related
pension obligation occurred on August 30, 1999.


                                       35
<PAGE>


         All active participants became fully vested for their accrued benefits.
The Plan provides that any excess assets will be allocated to  participants.  As
such,  based on the funded  status of the Plan,  no gain or loss  occurred  upon
settlement.
                                                                         1999
RECONCILIATION OF FUNDED STATUS:

Actuarial present value of accumulated benefit obligations:
    Vested portion                                                    $ 450,170
    Vested part of excess assets                                         98,310
    Non-vested portion                                                     --
                                                                      ---------
Accumulated benefit obligation                                          548,480
Effect of estimated future pay growth                                      --
                                                                      ---------

Projected benefit obligation                                            548,480
Plan assets at fair value                                               548,480
                                                                      ---------

FUNDED STATUS:

Unrecognized net (gain) or loss                                            --
Unrecognized prior service cost                                            --
Unrecognized net transition obligation                                     --
                                                                      ---------

    (Accrued) prepaid pension cost                                         --
                                                                      =========

Determination of pension cost:
    Service cost                                                           --
    Interest cost                                                     $  33,564
    Actual return on assets                                              10,923
    Net amortization and deferral                                       (44,487)
                                                                      ---------

            Net periodic pension cost                                      --
                                                                      =========


         The weighted  average  interest rate used in determining  the projected
benefit  obligation was 6.0% in 1999.  The expected  long-term rate of return on
assets was 6.0% for 1999.

         OFFICERS'  AND DIRECTORS  RETIREMENT  PLAN - During the year ended June
30, 1996, the Bank adopted a  "non-qualified"  retirement  plan for its officers
and directors in  recognition of their years of service to the Bank. The plan is
an annuity contract plan whereby funds are to be set aside annually in a grantor
trust, with the Bank acting as trustee of the Trust. Distributions are scheduled
to be paid upon  completion  of six to ten years of service to the Bank.  No tax
deduction  for the Plan is claimed  until  funds are paid to the  beneficiaries.
Future  funding is dependent on continued  service to the Bank and  therefore is
expensed  as the plan is funded each year.  For the years  ended June 30,  2000,
1999  and  1998,  contributions  to the  plan  totaled  approximately  $184,000,
$162,000, and $154,000, respectively.

         401(K)  PLAN -  Effective  July 1,  1993,  employees  of the  Bank  may
participate  in a 401(k)  savings plan,  whereby the employees may elect to make
contributions  pursuant to a salary reduction agreement upon reaching age 21 and
completing one year of service.  At its  discretion,  the Bank may make matching
contributions to the plan.  Employer  contributions vest 20% each year beginning
in the third year of service  and become 100%  vested in seven  years.  The Bank
made no  matching  contribution  during the years ended June 30,  2000,  1999 or
1998.

         EMPLOYMENT  AGREEMENTS - Certain executive officers of the Bank and the
Company  have  employment  agreements  with  three-year  renewable  terms.  Such
agreements  provide  for  termination  pay  and  other  benefits  under  certain
circumstances. Aggregate termination pay is approximately $1.1 million.



                                       36
<PAGE>


12.   FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

         The Company is a party to financial  instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers.  These financial instruments include commitments to extend credit and
standby  letters of  credit.  Those  instruments  involve,  to varying  degrees,
elements of credit risk in excess of the amount  recognized in the  consolidated
statements  of  financial   condition.   The  Company  does  not  use  financial
instruments  with  off-balance  sheet  risk  as  part  of  its   asset/liability
management  program or for trading  purposes.  The Company's  exposure to credit
loss  in the  event  of  nonperformance  by the  other  party  to the  financial
instrument  for  commitments  to extend credit and standby  letters of credit is
represented by the contractual  amounts of those  instruments.  The Company uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.

         Commitments  to extend  credit are  agreements to lend to a customer as
long as there is no  violation of any  condition  established  in the  contract.
Commitments  generally have fixed expiration dates or other termination clauses.
The Company evaluates each customer's  creditworthiness on a case-by-case basis.
The amount of  collateral  obtained,  if deemed  necessary  by the Company  upon
extension of credit,  is based on management's  credit  evaluation of the credit
applicant. Such collateral consists primarily of residential properties. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the  performance  of a customer to a third  party.  The credit risk  involved in
issuing  letters of credit is essentially the same as that involved in extending
loan facilities to customers.

         The Company had the following outstanding commitments at June 30, 2000:

Undisbursed construction loans                                        $4,778,701
Commitments to originate commercial/consumer loans                       150,000
Commitments to originate mortgage loans                                2,607,838
Unused lines of credit                                                   564,443
                                                                      ----------

     Total                                                            $8,100,982
                                                                      ==========


         The funding period for  construction  loans is generally less than nine
months and commitments to originate mortgage loans are generally outstanding for
60 days or less. At June 30, 2000, interest rates on commitments are believed by
management to approximate market rates.

13.   FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated  fair value  amounts have been  determined by the Company
using available  market  information and  appropriate  valuation  methodologies.
However,  considerable  judgment is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily  indicative  of the amounts the Company  could  realize in a current
market  exchange.  The use of different  market  assumptions  and/or  estimation
methodologies  may have a material  effect on the estimated  fair value amounts.
The estimated fair values of financial instruments are as follows:


                                       37
<PAGE>
<TABLE>
<CAPTION>

                                                             JUNE 30, 2000                  JUNE 30, 1999
                                                                     ESTIMATED                       ESTIMATED
                                                      CARRYING         FAIR          CARRYING           FAIR
                                                       VALUE          VALUE            VALUE           VALUE
<S>                                                <C>            <C>                <C>           <C>
      ASSETS:
        Cash and due from banks                    $   3,211,802  $  3,211,802       $  3,560,884  $   3,560,884
        Interest bearing deposits with banks             137,846       137,846            975,330        975,330
        Other interest bearing deposits with banks        99,000        99,000            718,000        718,000
        Investment securities:
          Available for sale                         132,543,065   132,543,065        147,119,689    147,119,689
        Loans receivable, net                        135,626,505   132,485,000        115,162,883    115,598,738
        Accrued interest receivable                    1,852,887     1,852,887          1,717,823      1,717,823
        Federal Home Loan Bank stock                   6,223,500     6,223,500          5,379,100      5,379,100

      LIABILITIES
        Deposits:
          Demand, NOW, money
            market and regular savings                40,444,089    40,444,089         38,002,720     38,002,720
          Certificates of deposit                    104,428,982   104,225,000        108,293,878    107,991,000
        Federal Home Loan Bank advances              115,609,029   111,141,000        104,523,419    101,550,000
        Advance payments by
          borrowers for taxes and insurance              139,554       139,554            128,442        128,442
        Accrued interest payable                         917,415       917,415            815,197        815,197
        Note payable                                     160,000       161,000            240,000        245,000
</TABLE>

         For cash and due from  banks,  interest  bearing  deposits  with banks,
other  interest  bearing  deposits with banks,  Federal Home Loan Bank stock and
accrued interest receivable, the carrying value is a reasonable estimate of fair
value  primarily  because  of the  short-term  nature of  instruments  or, as to
Federal Home Loan Bank stock,  the ability to sell the stock back to the Federal
Home Loan Bank at cost.  The fair  value of  investment  securities  is based on
quoted market prices, dealer quotes and prices obtained from independent pricing
services.  The fair  value of loans  receivable  is  estimated  based on present
values using risk-adjusted spreads to appropriate indexes to approximate current
entry-value interest rates considering  anticipated prepayment speeds,  maturity
and credit risks.

         The fair  value of  demand  deposit  accounts,  NOW  accounts,  savings
accounts  and money  market  deposits  is the  amount  payable  on demand at the
reporting  date.  The fair  value of  fixed-maturity  certificates  of  deposit,
Federal Home Loan Bank advances,  and note payable is estimated  using the rates
currently offered for deposits and borrowings of similar remaining maturities at
the reporting  date.  For advance  payments by borrowers for taxes and insurance
and accrued interest payable the carrying value is a reasonable estimate of fair
value,  primarily because of the short-term  nature of instruments.  Commitments
are  generally  made at  prevailing  interest  rates at the time of funding and,
therefore, there is no difference between the contract amount and fair value.

         The fair  value  estimates  presented  herein  are  based on  pertinent
information  available  to  management  as of June 30,  2000 and 1999.  Although
management  is not aware of any  factors  that  would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued for purposes of these  financial  statements  since the reporting  date
and,  therefore,  current estimates of fair value may differ  significantly from
the amounts presented herein.


                                       38
<PAGE>


14.   COMMITMENTS AND CONTINGENCIES

         In the ordinary course of business, the Company has various outstanding
commitments   and  contingent   liabilities   that  are  not  reflected  in  the
accompanying  consolidated  financial statements.  In addition, the Company is a
defendant in certain claims and legal actions  arising in the ordinary course of
business.  In the opinion of management,  after consultation with legal counsel,
the  ultimate  disposition  of these  matters is not expected to have a material
adverse effect on the consolidated financial statements of the Company.

         During the year ended June 30, 1998, a circuit court entered a judgment
against the Bank in the amount of $78,000 for breach of contract  regarding  its
alleged  failure to provide a party the right to purchase  real estate  formerly
used as a branch  location.  The Company  appealed  the judgment to the court of
appeals and on November 4, 1999,  the Company was  informed  that the appeal was
successful  and the lower  court's  decision  was  reversed.  No accrual of this
possible loss was made in the consolidated financial statements.

         In May, 1999, a shareholder  filed a class action complaint against the
Company and several  current and former  officers  alleging that the  defendants
defrauded the  plaintiff and other  shareholder  class members  through  various
public  statements and reports thereby  artificially  inflating the price of the
Company's  common stock and causing the  plaintiff and other  shareholder  class
members to purchase the Company's common stock at inflated prices.

         The  Company  and its  counsel  have  reviewed  the  complaint  and are
contesting  the  allegations  vigorously.  Management is unable to determine the
likelihood  of an  unfavorable  outcome of the suit or the amount of any damages
that the Company may have to pay, if any. The Company  will incur costs  through
the payment of legal fees and the  related  costs of  litigation.  The extent of
these costs is not determinable at this time.

15.   RETAINED EARNINGS

         Upon the  Conversion,  the Company  established  a special  liquidation
account  for the  benefit  of  eligible  account  holders  and the  supplemental
eligible  account  holders in an amount equal to the net worth of the Bank as of
the date of its latest statement of financial  condition  contained in the final
offering  circular  used in  connection  with the  Conversion.  The  liquidation
account  will be  maintained  for the  benefit of eligible  account  holders and
supplemental eligible account holders who continue to maintain their accounts in
the Bank after Conversion.  In the event of a complete  liquidation (and only in
such event),  each eligible and  supplemental  eligible  account  holder will be
entitled to receive a liquidation  distribution from the liquidation  account in
an amount proportionate to the current adjusted qualifying balances for accounts
then held.

         The Bank may not declare or pay cash  dividends on its shares of common
stock if the effect  thereof would cause the Bank's  stockholders'  equity to be
reduced below applicable regulatory capital maintenance requirements for insured
institutions or below the special  liquidation  account referred to above.  This
requirement  effectively  limits the dividend  paying  ability of the Company in
that the Company must maintain an investment in equity of the Bank sufficient to
enable  the  Bank to meet its  requirements  as noted  above.  Required  capital
amounts  are  shown  in  Note  16  to  the  consolidated  financial  statements.
Liquidation  account  balances  are  not  maintained  because  of  the  cost  of
maintenance and the remote likelihood of complete liquidation. Additionally, the
Bank is limited to distributions it may make to Bancshares  without OTS approval
if the distribution would cause the total distributions to exceed the Bank's net
income for the year to date plus the Bank's net income (less  distributions) for
the preceding two years.  Bancshares may use assets other than its investment in
the Bank as a source of dividends.


                                       39
<PAGE>

16.   REGULATORY MATTERS

         The  Bank  is  subject  to  various  regulatory  capital   requirements
administered  by  federal  banking  agencies.  Failure to meet  minimum  capital
requirements   can   initiate   certain   mandatory--and   possible   additional
discretionary--actions  by regulators  that, if undertaken,  could have a direct
material  effect on the Bank's  financial  statements.  Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities,  and certain  off-balance sheet items as calculated
under  regulatory   accounting   practices.   The  Bank's  capital  amounts  and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

         Quantitative  measures  established  by  regulation  to ensure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table below) of tangible capital (as defined in the regulations) to tangible
assets (as defined)  and core capital (as defined) to adjusted  total assets (as
defined),  and of total risk-based capital (as defined) to risk-weighted  assets
(as defined).

         As of June 30,  2000 and 1999,  the most recent  notification  from the
Office of Thrift Supervision  categorized the Bank as well capitalized under the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized  the  Bank  must  maintain  minimum  core  (Tier  I  core),  Tier  I
risk-based,  and total risk-based ratios as set forth in the table. There are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.

         The Bank's actual  capital  amounts (in  thousands) and ratios are also
presented in the tables:
<TABLE>
<CAPTION>
                                                                                                TO BE CATEGORIZED
                                                                                               AS WELL CAPITALIZED
                                                                                                  UNDER PROMPT
                                                                            FOR CAPITAL           CORRECTIVE
                                                          ACTUAL         ADEQUACY PURPOSES      ACTION PROVISIONS
                                                    AMOUNT      RATIO    AMOUNT     RATIO      AMOUNT        RATIO
                                                    -----------------    ----------------      -------------------
     AS OF JUNE 30, 2000:

<S>                                                <C>         <C>        <C>        <C>        <C>          <C>
Tier I (Core) Capital to Adjusted Total Assets     $ 29,437    10.02 %    $ 11,756   4.00 %     $ 14,695     5.00 %
Total Risk-Based Capital to Risk-weighted Assets     30,669    21.79 %      11,262   8.00 %       14,077    10.00 %
Tier I (Core) Capital to Risk-weighted Assets        29,437    20.91 %      N/A      N/A           8,446     6.00 %
Tangible Capital to Tangible Assets                  29,437    10.02 %       4,408   1.50 %          N/A      N/A

      AS OF JUNE 30, 1999:

Tier I (Core) Capital to Adjusted Total Assets     $ 30,063    10.50 %    $ 11,448   4.00 %     $ 14,310     5.00 %
Total Risk-Based Capital to Risk-weighted Assets     31,285    25.44 %       9,840   8.00 %       12,300    10.00 %
Tier I (Core) Capital to Risk-weighted Assets        30,063    24.44 %      N/A      N/A           7,380     6.00 %
Tangible Capital to Tangible Assets                  30,063    10.50 %       4,293   1.50 %          N/A      N/A

</TABLE>

         Regulations  require  the Bank to  maintain  an  amount  equal to 4% of
deposits (net of loans collateralized by deposits) plus short-term borrowings in
cash and U.S. Government and other approved securities.


                                       40
<PAGE>


17.   PARENT COMPANY ONLY FINANCIAL INFORMATION

         The following  condensed  statements of financial  condition as of June
30, 2000 and 1999,  and  condensed  statements  of income and cash flows for the
years ended June 30, 2000 and 1999, for HCB  Bancshares,  Inc. should be read in
conjunction with the consolidated financial statements and the notes herein.

      HCB BANCSHARES, INC.
      (PARENT COMPANY ONLY)

      CONDENSED STATEMENTS OF FINANCIAL CONDITION
      JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>

      ASSETS                                                                             2000              1999
<S>                                                                                 <C>              <C>
      Deposit in Bank                                                               $   1,168,897    $   2,866,424
      Investment in Bank                                                               25,898,664       27,800,471
      Loans receivable                                                                    700,000       2,413,019
      Investment securities                                                                53,625          60,375
      Other assets                                                                        419,364          156,461
                                                                                     ------------    -------------
      TOTAL ASSETS                                                                  $  28,240,550    $  33,296,750
                                                                                     ============     ============
      LIABILITIES AND STOCKHOLDERS' EQUITY
      Accrued expenses and other liabilities                                        $          --    $   1,179,190
      Stockholders' equity                                                             28,240,550       32,117,560
                                                                                     ------------     ------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $  28,240,550    $  33,296,750
                                                                                     ============     ============
<CAPTION>
      CONDENSED STATEMENTS OF INCOME
      YEARS ENDED JUNE 30, 2000 AND 1999

<S>                                                                                 <C>              <C
      INCOME:                                                                            2000             1999
        Interest and dividend income                                                $  346,007       $  395,595
      EXPENSES:
        Operating expenses                                                             301,181          242,402
                                                                                     ---------        ---------
      INCOME BEFORE INCOME TAXES AND EQUITY IN
        UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                                       44,826         153,193
      INCOME TAX PROVISION (BENEFIT)                                                    15,242         (31,220)
                                                                                     ---------       ----------
      INCOME BEFORE EQUITY IN UNDISTRIBUTED
        EARNINGS OF BANK SUBSIDARY                                                      29,584          184,413
      EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY                              756,318          231,228
                                                                                     ---------        ---------
      NET INCOME                                                                    $  785,902       $  415,641
                                                                                     =========        =========

</TABLE>

                                       41
<PAGE>


      HCB BANCSHARES, INC.
      (PARENT COMPANY ONLY)

      CONDENSED STATEMENTS OF CASH FLOWS
      YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
      OPERATING ACTIVITIES:                                                              2000              1999
        <S>                                                                         <C>              <C>
         Net income                                                                 $     785,902    $     415,641
         Adjustments to reconcile net income to net cash provided
            (used) by operating activities:
           Equity in undistributed earnings of Bank subsidiary                           (756,318)        (231,228)
           Changes in operating assets and liabilities:
             Other assets                                                                 954,507         (143,649)
             Accrued expenses and other liabilities                                    (1,179,190)       1,106,643
                                                                                    -------------    -------------
                  Net cash provided (used) by operating activities                       (195,099)       1,147,407
                                                                                    -------------    -------------
      INVESTING ACTIVITIES:
         Purchase of investments                                                                           (63,100)
                                                                                               --
         Purchase loan, net of repayments                                               1,713,019       (2,413,019)
                                                                                    -------------    -------------
                  Net cash provided (used) by investing activities                      1,713,019       (2,476,119)
                                                                                    -------------    -------------
      FINANCING ACTIVITIES:
         Dividends paid                                                                  (506,929)        (592,612)
         Purchase of treasury stock                                                    (2,708,518)      (3,242,527)
                                                                                    -------------    -------------
                  Net cash used by financing activities                                (3,215,447)      (3,835,139)
                                                                                    -------------    -------------
      NET DECREASE IN CASH AND CASH EQUIVALENTS                                        (1,697,527)      (5,163,851)
      CASH AND CASH EQUIVALENTS:
         Beginning of period                                                            2,866,424        8,030,275
                                                                                    -------------    -------------
         End of period                                                              $   1,168,897    $   2,866,424
                                                                                    =============    =============
</TABLE>

                                       42
<PAGE>


18.   OTHER COMPREHENSIVE INCOME

         The amount of income tax expense or benefit allocated to each component
of  comprehensive  income,  including  reclassification  adjustments,  are shown
below:
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED JUNE 30, 2000
                                                                     -----------------------------------------------------
                                                                        BEFORE TAX        TAX BENEFIT       NET-OF-TAX
                                                                          AMOUNT            AMOUNT            AMOUNT
         <S>                                                         <C>                <C>              <C>
         UNREALIZED LOSSES ON SECURITIES:
           Unrealized holding loss on securities
             arising during period                                   $ (2,991,525)      $ (1,210,530)    $ (1,780,995)
           Less reclassification adjustment for
             (gains) losses included in net income

                                                                     --                 --               --
                     Other comprehensive loss                        $ (2,991,525)      $ (1,210,530)    $ (1,780,995)
                                                                      ============       ============     ============

<CAPTION>

                                                                                   YEAR ENDED JUNE 30, 1999
                                                                     -----------------------------------------------------
                                                                        BEFORE TAX        TAX BENEFIT       NET-OF-TAX
                                                                          AMOUNT            AMOUNT            AMOUNT
         <S>                                                         <C>                <C>              <C>
         UNREALIZED LOSSES ON SECURITIES:
           Unrealized holding loss on securities
             arising during period                                   $ (3,790,398)      $ (1,288,735)    $ (2,501,663)
           Less reclassification adjustment for
             gains included in net income                                (261,996)                --         (172,917)
                                                                      -----------        -----------      -----------
                     Other comprehensive loss                        $ (4,052,394)      $ (1,377,814)    $ (2,674,580)
                                                                      ===========        ============     ===========

<CAPTION>

                                                                                   YEAR ENDED JUNE 30, 1998
                                                                     -----------------------------------------------------
                                                                        BEFORE TAX        TAX EXPENSE       NET-OF-TAX
                                                                          AMOUNT           (BENEFIT)          AMOUNT

         <S>                                                         <C>                <C>              <C>
         UNREALIZED GAINS (LOSSES) ON SECURITIES:
           Unrealized holding gain on securities
             arising during period                                   $  154,470         $    52,520      $  101,950
           Less reclassification adjustment for
             gains included in net income                               (22,257)            (7,567)         (14,690)
                                                                      ---------          ---------        ----------
                     Other comprehensive income                      $  132,213         $   44,953       $    87,260
                                                                      =========          =========        ==========

</TABLE>

                                       43
<PAGE>


19.   QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following  tables  represent  summarized  data for each of the four
quarters in the years ended June 30, 2000 and June 30, 1999.
<TABLE>
<CAPTION>

                                                                                2000
                                                                    (in thousands, except share data)
                                                     -----------------------------------------------------------
                                                     Fourth             Third           Second            First
                                                     Quarter           Quarter          Quarter          Quarter

      <S>                                           <C>              <C>               <C>             <C>
      Interest income                               $  5,046         $  4,953          $  4,912        $  4,898
      Interest expense                                 3,419            3,325             3,228           3,128
                                                       -----            -----             -----           -----

      Net interest income                              1,627            1,628             1,684           1,770
      Provision for loan losses                           --               --                --              --

      Net interest income after provision
        for loan losses                                1,627            1,628             1,684           1,770
      Noninterest income                                 316              240               257             227
      Noninterest expenses                             1,716            1,784             1,850           1,954
                                                       -----            -----             -----           -----

      Income (loss) before income taxes                  227               84                91              43
      Income tax provision (benefit)                    (205)            (152)               15               1
                                                       -----            -----             -----           -----

      Net income                                         432              236                76              42

      Basic earnings per common share                   0.22             0.12              0.04            0.02

      Diluted earnings per common share                 0.22             0.12              0.04            0.02

      Cash dividends declared per common share          0.06             0.06              0.06            0.06
      Average common shares and common stock
        equivalents outstanding                    1,922,356        1,918,618         1,953,898       2,161,695

<CAPTION>

                                                                                1999
                                                                    (in thousands, except share data)
                                                     ------------------------------------------------------------
                                                     Fourth             Third           Second            First
                                                     Quarter           Quarter          Quarter          Quarter

      <S>                                           <C>              <C>               <C>             <C>
      Interest income                          $       4,474    $       4,621     $       4,655   $       4,525
      Interest expense                                 3,015            3,000             3,120           2,959
                                                       -----            -----             -----           -----

      Net interest income                              1,459            1,621             1,535           1,566
      Provision for loan losses                           --               --                --              --

      Net interest income after provision
        for loan losses                                1,459            1,621             1,535           1,566
      Noninterest income                                 196              214               308             301
      Noninterest expenses                             1,673            1,880             1,888           1,407
                                                       -----            -----             -----           -----

      Income (loss) before income taxes                  (18)             (45)              (45)            460
      Income tax provision (benefit)                     (93)             (63)              (58)            150
                                                       -----            -----             -----           -----

      Net income                                          75               18                13             310

      Basic earnings per common share                   0.03             0.01              0.01            0.13

      Diluted earnings per common share                 0.03             0.01              0.01            0.13

      Cash dividends declared per common share          0.06             0.06              0.06            0.06
      Average common shares and common stock
        equivalents outstanding                    2,220,650        2,326,208         2,388,538       2,459,585

</TABLE>


                                       44
<PAGE>

                              CORPORATE INFORMATION

DIRECTORS

Vida H. Lampkin
  Chairman of the Board

Cameron D. McKeel
 President and Chief
    Executive Officer

Roy Wayne Moseley
   Self-employed
   Fordyce, Arkansas

Bruce D. Murry
   Self-employed
   Camden, Arkansas

Carl E. Parker, Jr.
   General Manager, Camden Monument Co.
   Camden, Arkansas

Lula Sue Silliman
   Retired
   Camden, Arkansas

Clifford Steelman
   Senior Human Resource Administrator,
   Atlantic Research Corporation
   Camden, Arkansas

EXECUTIVE OFFICERS

William C. Lyon
    Senior Vice President and Chief Lending Officer

ANNUAL STOCKHOLDERS
   MEETING:

November 16, 2000 - 10:00 a.m.
    Camden Country Club
    1915 Washington Street SW
    Camden, Arkansas
    Record Date - October 5, 2000

MAIN OFFICE:

   237 Jackson Street, S.W.
   Camden, Arkansas



                                       45
<PAGE>

BRANCH OFFICES:

   22461 Interstate 30, Suite 1100A
   Bryant, Arkansas

   1125 Fairview Road SW
   Camden, Arkansas

   610 West 4th Street
   Fordyce, Arkansas

   473 Highway 425 North
   Monticello, Arkansas

   108 South Main Street
   Sheridan, Arkansas

INDEPENDENT AUDITOR:

  Deloitte & Touche, LLP
  111 Center Street, Suite 1800
  Little Rock, Arkansas 72201

GENERAL COUNSEL:

  Robert S. Laney, Esquire
  P.O. Box 777
  Camden, Arkansas  71711-0777

SECURITIES AND REGULATORY
   COUNSEL:

  Stradley Ronon Housley Kantarian  & Bronstein, LLP.
  1220 19th Street, N.W., Suite 700
  Washington, D.C.  20036

STOCK REGISTRAR & TRANSFER
   AGENT

   Registrar and Transfer Company
   Cranford, New Jersey  07016-3572


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